The European Central Bank is scheduled to gather on July 23, and oil prices have once again moved to the center of concern for the institution’s policymakers.
A brief pullback in energy costs last month temporarily eased pressure on officials to raise interest rates — but that relief did not last long. With a lasting resolution to the Iran war appearing unlikely, uncertainty continues to cloud the road ahead.
Here are five key questions surrounding the upcoming meeting:
1. What action will the ECB take on July 23?
The most likely outcome is that the ECB will hold its key interest rate steady at 2.25%. That would follow a June rate increase that made the ECB the first among the world’s largest central banks to raise rates in response to the war.
While renewed conflict has pushed oil and natural gas prices higher, oil sitting near $85 per barrel is still well below the peaks seen in March and April — meaning policymakers feel no urgent need to act immediately. Even so, financial markets are still factoring in a small probability of a rate move.
Morgan Stanley’s chief Europe economist Jens Eisenschmidt noted that the question of whether a July hike was even discussed will likely come up. “There will be questions on whether a hike in July was discussed. I’m pretty sure that a few (policymakers) might bring it up,” he said. He added that any such conversation could serve as a signal about where the ECB stands heading into September.
2. How does the renewed Iran war escalation affect the ECB’s outlook?
For now, the moderate rise in oil prices — compared to earlier, more dramatic spikes — means the situation hasn’t shifted dramatically from what policymakers anticipated in June.
Oil futures are currently trading within a range that falls between the baseline and more favorable scenarios the ECB outlined last month, which supports the argument for holding rates in July.
Additionally, euro zone inflation declined more sharply than expected in June, and that drop wasn’t driven solely by energy prices — underlying inflation, which strips out energy costs, also fell more than forecasters had predicted.
Rabobank senior macro strategist Bas van Gaffen said policymakers have reason to be patient: “Policymakers can probably wait until September for more clarity on how developments in the Middle East affect inflation and the inflation outlook.”
3. Will the ECB raise rates again before the year is out?
Most likely yes. Both traders and economists surveyed by Reuters expect another rate hike, with September being the most anticipated timing — partly because that’s when the ECB releases updated economic projections.
Even during the period when oil prices were falling, sources indicated to Reuters that the rationale for a post-July rate increase remained solid. Now that energy prices have climbed again, traders have increased their bets on an additional move after September as well — though only three out of 74 economists polled by Reuters share that view.
Ross Hutchison, head of euro zone market strategy at Zurich Insurance Group, described the ECB’s mindset this way: “It’s super clear when we listen to the vast majority of ECB speakers, they simply are more concerned about missing inflation again to the upside than they are about the risk of what they still see as a weak but resilient economic outlook.”
A fertilizer shortage stemming from the Middle East conflict, combined with a European heatwave, could push food prices higher and keep inflation elevated — even if energy costs eventually ease. That said, some analysts remain skeptical that further rate hikes are necessary at this point, noting that there are few signs of accelerating wage pressures or second-round inflation effects.
4. What would happen if the ECB raised its minimum reserve requirement?
Analysts say it would drain liquidity from the financial system at a somewhat faster pace, moving up the timeline at which money markets become more sensitive to liquidity conditions.
Reuters recently reported that the ECB is weighing a plan to double the share of cash that banks must hold in non-interest-bearing reserve accounts. That move would reduce the interest the ECB pays banks on their excess reserves — a cost that grows as rates rise.
Societe Generale expects the effect on short-term funding markets to be relatively limited. The bank estimates the measure would remove roughly 160 to 170 billion euros in excess liquidity from the system, compared to the approximately 500 billion euros per year already being withdrawn through quantitative tightening.
5. Is the digital euro gaining momentum?
It appears so. In June, the ECB received important backing from the European Parliament for the digital euro project, ending three years of disputes with banks that have worried about losing deposits and revenue.
The push to launch a digital euro has taken on added urgency since President Donald Trump’s tariffs sparked concerns that the U.S. could potentially use its dominance over American payment networks as a geopolitical tool.
The goal is to finalize legislation by the end of this year, with a pilot program launching next year and a full rollout targeted for 2029.
Morgan Stanley’s Eisenschmidt said the digital euro is a meaningful step toward reducing Europe’s reliance on foreign payment systems, but cautioned that its current design — focused primarily on retail users — may limit how much it can achieve that goal.
