Meeting of 22-23 July 2026

July was a hold after the June hike, unanimous, but the account is more hawkish than the decision. Some members would not have opposed hiking again in July and pointed to June analysis showing rates need to rise further under every scenario, including the milder one. The compromise price for unanimity was communication that stresses commitment to the 2% target, plus the explicit line that another hike will likely be needed unless the inflation outlook improves significantly. June HICP surprised down at 2.8% and underlying measures eased, but members explicitly warned against taking comfort given gas prices, crack spreads and the resumption of hostilities.

What’s new: The size and confidence of the hawkish minority is the new information. Markets knew the hold and knew a September hike was almost fully priced. What they did not have is the framing that the option value of waiting was judged small, that some members wanted rates in mildly restrictive territory, and that the June scenario work implied further tightening under all scenarios including the milder one. Offsetting that, the account also inserts an explicit non-commitment to September and flags that a hike carries some probability of a subsequent reversal. Net: a modest hawkish tilt on top of what was priced, not a regime change.

KEY FINDINGS

• All members agreed to hold, but "some members" said they would not have opposed a hike in July, arguing the option value of waiting was small and that rates need to move into mildly restrictive territory. Confirms September as the live meeting and puts a floor under front-end pricing: the burden of proof now sits on the doves to stop a hike.
• Communication guidance says another rate hike would likely be necessary unless the inflation outlook improves significantly, while simultaneously stressing no pre-commitment to September. A conditional hiking bias in the account text, which is more directional than the press statement and supports the almost-fully-priced September move.
• June HICP surprised down to 2.8% from 3.2%, broad-based across energy, food, goods and services, and underlying measures eased, yet members explicitly warned the windfall would not last and risks stay to the upside. Removes the dovish read from the downside inflation print: a soft July CPI on its own will not be enough to derail a September hike.
• Composition of the energy shock has rotated: gas prices up 16% and above the June baseline through end-2027, crack spreads at all-time highs, while oil sits 6% lower at USD 89. The synthetic index is back at the June baseline. Keeps the electricity and core pass-through channel alive even if crude falls, so oil-led disinflation trades against the ECB are the wrong expression.
• Second-round effects still absent: wage tracker at 2.6% for 2026 and 2.7% in Q1 2027, wage expectation surveys edging lower, margins broadly stable, but a net 58% of SAFE firms expect to raise selling prices and CTS shows more frequent repricing and contractual cost pass-through. The doves' core argument holds for now, which is why the hold was unanimous, but the corporate survey evidence is the tripwire for September.
• Money market section flags repo rates drifting up versus the DFR and not fully reverting after the June quarter-end spike, described as a return to more balanced liquidity in line with the framework. Signals excess liquidity is genuinely draining: relevant for euro repo and short-end spread trades, and the ECB is comfortable with it.

FROM THE DOCUMENT

Some members noted that, as the incoming data since the June Governing Council meeting had underlined the case for further policy tightening, they would not have opposed raising rates at the current meeting.

They referred to the analysis conducted in June which had shown that rates needed to increase further under all scenarios contained in the June projections, including the milder scenario.

These members also argued that rates needed to move into mildly restrictive territory, with current interest rates seen as not restraining the economy, which was corroborated by the further acceleration in the growth of loans to firms and households.

While decisions remained data-dependent, another rate hike would likely be necessary unless the inflation outlook improved significantly.