ECB Holds Interest Rates at 2.25% as Middle East Tensions Keep Further Hike Possible

The European Central Bank (ECB) has left interest rates unchanged, pausing after June's first rate hike in three years as easing inflation gave policymakers more time to assess economic conditions.

The ECB left interest rates unchanged while monitoring inflation and energy price risks.

However, renewed fighting in the Middle East has pushed energy prices higher, keeping another rate increase on the table for autumn, Quirino Mealha reported for Euronews.

The ECB's Governing Council kept the deposit facility rate at 2.25%, while the main refinancing rate remained at 2.40% and the marginal lending facility at 2.65%.

These three benchmark rates determine monetary policy across the eurozone, with the deposit facility rate serving as the primary reference rate.

"The outlook for energy prices, while highly volatile, stands close to the baseline of the June Eurosystem staff projections and well above the levels recorded prior to the conflict in the Middle East," the ECB said.

"Uncertainty remains high and the full inflationary impact of the energy shock has yet to play out. The Governing Council is therefore closely monitoring the intensity and duration of the shock, as well as its indirect and second-round effects," it added.

The decision follows confirmation that eurozone inflation eased to 2.8% in June from 3.2% in May, marking the first decline this year, while core inflation slowed to 2.4%.