There remains a very real risk the ECB could be embarking on a flawed policy path if additional inflationary pressures do not materialise and the economy weakens further in the face of tighter monetary policy.

The July meeting of the ECB’s Governing Council saw the central bank leave its key interest rates unchanged and simultaneously leave the door open to a rate hike in September. 

The deposit and refi rates were maintained at 2.25% and 2.40%, respectively. This was very much in line with market expectations. The decision to remain on hold was unanimous.