ECB keeps rates on hold in July due to persisting uncertainty on US-EU trade dispute

The European Central Bank left interest rates unchanged in its July policy meeting on Thursday after cutting eight times during the past year that halved interest rates from 4% to 2% after last month’s cut.

Inflation in the Eurozone returned to ECB’s 2% target and expected to stay there for some time that prompted policymakers to stay on hold this time.

The central bank also considered uncertainty over the trade issue between the bloc and President Trump’s administration, as US – EU trade talks entered its final phase, though still without a deal.

The latest decision reflects ECB’s balanced picture of the economy, with near-term uncertainty over tariffs.

The ECB said that the economy has so far been resilient in a challenging global environment, but stressed that the environment remains exceptionally uncertain, especially because of trade disputes.

A dash of optimism came from the latest news signaling that US and EU are near the agreement that would result in a broad tariff of 15% on US imports of European Union goods, scenario that is somewhere in the middle between the ECB’s baseline and severe scenarios for the euro zone economy presented last month and Trump’s threat of imposing 30% tariffs.

Policymakers expect that economic growth could pick up from the fourth quarter if two sides reach a deal and that calmer environment would reduce pressure on the central bank to cut rates further.

The ECB also said that future decisions will be on meeting by meeting base and will depend on central bank’s assessment of the inflation outlook and the risks surrounding it.