The European Central Bank is preparing to hold its meeting on July 23 amid rising concerns about oil prices and the repercussions of a war with Iran, after the impact of lower energy prices on monetary policy temporarily subsided.
Despite the renewed rise in oil prices, forecasts indicate that the bank will keep its main interest rate at 2.25%, after raising it in June for the first time among major central banks in response to the repercussions of the war on Iran.
Policymakers believe that current oil prices, at around $85 a barrel, are still far from the peak levels recorded last March and April.
Markets are awaiting the bank's stance on the possibility of another interest rate hike this year, with economists and traders predicting a likely move in September, coinciding with the release of new economic forecasts. However, the continued absence of strong wage pressures or secondary inflationary effects is leading some analysts to question the need for further monetary tightening.
Investors are also monitoring the impact of an escalating war in the Middle East on inflation, especially as inflation in the Eurozone fell more than expected in June, including core inflation excluding energy.
On the liquidity side, the European Central Bank is considering raising the cash reserve requirements for banks, which could reduce excess liquidity in the financial system by about 160 to 170 billion euros, but the expected impact on short-term funding markets is likely to be limited.
The digital euro project has gained momentum after receiving parliamentary support, amid European efforts to reduce reliance on foreign payment networks. A pilot program is expected to begin next year, with a formal launch planned for 2029.
The European Central Bank’s next decisions will depend on developments in energy prices, the trajectory of inflation, and the impact of geopolitical tensions on the European economy.
