ECB's Stournaras calls July rate hike unlikely after inflation drop

ECB Governing Council member Yannis Stournaras said Wednesday a July rate hike is unlikely after eurozone inflation dropped to 2.8%, below the expected 3.0%.investing+1
The ECB raised its deposit rate by 25 basis points to 2.25% on June 11, its first hike since 2023, in response to energy-driven inflation from the Iran conflict.ecb.europa+1
Easing energy costs and declining core inflation to 2.4% bolster the case for a pause, with September seen as the more likely date for further tightening.investinglive+1

European Central Bank Governing Council member Yannis Stournaras said Wednesday that the central bank likely does not need to raise interest rates at its next meeting in July, after euro-zone inflation fell more sharply than expected in June. Speaking at the ECB's annual forum in Sintra, Portugal, the Greek central bank governor described the latest consumer price data as a "big downside surprise."investing+1

Stournaras's remarks came hours after Eurostat published its flash estimate showing euro-area inflation eased to 2.8% in June, down from 3.2% in May and below market expectations of 3.0%. The decline was driven largely by a moderation in energy costs, which rose 8.7% year-on-year compared with 10.9% in the prior month, as hopes for a reopening of the Strait of Hormuz eased pressure on global oil markets.democrata+2

A Shifting Calculus After the June Hike

The ECB raised its deposit rate by 25 basis points to 2.25% on June 11 — its first increase since 2023 — in response to inflation that had been pushed above 3% by the energy shock stemming from the Iran conflict and the Strait of Hormuz blockade. At the time, officials signaled openness to further tightening but made no commitment to act in July or September.econostream-media+2

Before Wednesday's inflation data, market pricing implied roughly 34% odds of another hike at the ECB's July 22-23 meeting, with a September move seen as the more likely scenario. The softer-than-expected reading now appears to have shifted the balance further in favor of a pause.investinglive

Energy Prices and the Path Ahead

The inflation cooldown aligns with broader developments in energy markets. Oil prices have retreated amid anticipation of an interim peace deal between the Trump administration and Iran, and the planned reopening of the Strait of Hormuz. Core inflation, which strips out energy and food, also declined to 2.4% in June from 2.6% in May, easing concerns about broader price pressures.degroofpetercam+1

Still, inflation remains well above the ECB's 2% target, and the bank's own projections from June foresee a return to target only in late 2028. Reuters reported earlier that ECB officials were already leaning toward a July pause provided energy prices remained stable, with September remaining the more probable date for any additional tightening.reuters+2

Sources (37)