July ECB meeting: A victory lap on inflation

Market response

July 24, 2025 | 2 min read

Christian Floro, CFA, CMT

Market Strategist

As expected, the European Central Bank (ECB) kept its policy rates steady today, marking a pause in its cutting cycle that has seen rates decline by 200bps since June of last year. The interest rates on the main refinancing operations, the marginal lending facility, and the deposit facility were each kept unchanged at 2.15%, 2.40% and 2.00%, respectively. With inflation at the ECB’s 2% target, the inflationary shock of the past few years is now largely behind them. Moreover, with economic activity developing better than expected, the ECB President Christine Lagarde reiterated that the central bank is in a very good place to respond to the downside risks around evolving trade policy.

Recent developments

The euro area economy has proven itself resilient despite the challenging global environment, bolstered by strong private consumption and investment amid a modest expansion on both manufacturing and services sectors. The strong labor market and healthy balance sheets provide additional positive economic buffers. Moreover, with increased conviction that inflation is overall consistent with its 2% target over the medium term, ECB President Lagarde reiterated the central bank is well-positioned to navigate any challenges ahead.

This will likely be needed given that risks to growth remain tilted to the downside amid the ongoing trade war and the uncertainties it brings. Moreover, the outlook for inflation is also more uncertain than usual, especially given the strength in the Euro so far this year. This is likely to be a focus for Lagarde, as it could add downward pressure on inflation, which likely tilts overall inflation risks to the downside.

Policy outlook

With economic activity holding up better than expected, and with the battle on the recent inflationary surge won—as inflation is currently at the ECB’s medium-term target—the central bank has shifted to a wait-and-see approach, focusing on the ongoing trade war and the downside risks that it brings to growth.

The door to further easing remains open, especially given the risks posed by threats of unexpectedly high U.S. tariffs on EU goods and the increasing emphasis on sector-specific measures. Further strength in the euro currency may also shift concerns towards undershooting the ECB’s 2% target. Another 25 basis points rate cut remains a strong possibility later in the year.

Macro views

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