Markets are pricing in a 92% chance of interest rates being held by the European Central Bank.
Markets are expecting interest rates to be held by the European Central Bank when it meets on Thursday, but analysts expect hints for hikes later in the year.
There's a 92% chance of rates being kept at 2.25%, with an 8% probability of a 25-basis-point hike, according to the ECB Watch tool, which estimates the odds of monetary policy changes at the central bank based on an analysis of euro short-term rate futures contracts. The central bank's governing council is set to release its decision at 8:15 a.m. Eastern at the end of its meeting at its headquarters in Frankfurt, Germany.
Economists at Citigroup led by Giada Giani, who covers the Eeurozone, wrote in a recent note that they see the ECB leaving rates unchanged, but a hike may come after a host of inflation data gets released later on Thursday and on Friday.
"Despite the resurfacing tensions in the Middle East and rising oil prices, these remain somewhat below the June baseline assumptions and signs of second-round effects remain limited, likely warranting a pause in contrast to our earlier expectations," they wrote. "However, we still envisage another rate hike before the year-end."
The annual inflation rate in the Euro area, which includes 21 countries, came in at 2.8% in June, down from 3.2% in May, and below expectations of 3%. Citigroup is forecasting "timid gains" in the eurozone purchasing managers index for July. For the month's consumer sentiment, it anticipates a possible stall in growth, owing to rising fuel prices.
The ECB was the first of the central banks in the Group of Seven nations to raise rates as a result of the energy shock caused by the war in Iran, hiking by 0.25 percentage points in June to 2.25%. Later in the month, the Bank of Japan raised its rates by 25 basis points to 1% - a level not seen since 1995, while the Bank of Canada, the Bank of England and the Federal Reserve all decided to hold rates.
Oil prices (BRN00) (CL.1) eased when the U.S. and Iran signed the Memorandum of Understanding in mid-June. But now, following a series of strikes between the two over the past 11 days and traffic through the Strait of Hormuz nearing a standstill, prices have crept up again, with Brent crude 22% higher in one month.
The flow of geopolitical and energy headlines since the hike in June means a surprise raise "should not be fully ruled out," Francesco Pesole, strategist at ING, wrote in a note on Tuesday.
The Dutch bank's baseline is hawkish-leaning, where the bank hints at a rate hike to come, possibly in September, but as part of a media leak as opposed to in the official statement or during the press conference.
"We expect the hawkish wing of the governing council to remain more dominant, keeping market pricing skewed towards one or two rate hikes by year-end and limiting the risk of inflation expectations becoming de-anchored," they said.
Bank of America expects a quarter-point hike in September because of the rebound in energy prices. Although analysts at the bank, led by Ruben Segura-Cayuela, wrote in a recent note that they do not see a pattern of policy tightening on the horizon.
They said: "Our strong conviction here is that, irrespective of whether the ECB hikes once or twice this year, policy rates at the end of 2027 will be 2% at most. Why? We still think inflation will prove a lot less persistent than feared. The shape of the current energy price shock is nowhere near that of 2022."
-Nora Redmond
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July 22, 2026 06:01 ET (10:01 GMT)
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