In June, the ECB hiked its key rate due to concerns that increasing oil costs would ripple through the broader economy. Since then, oil has fallen sharply, and one top official says the bank is now in a good place. But policymakers are split on what to do next.
The aim was to prevent elevated energy costs from spilling over into other sectors.
At the time, crude oil was climbing. But then a peace deal with Iran helped calm markets, and inflation slowed faster than anyone expected.
Bank of France Governor Emmanuel Moulin, who also sits on the ECB's Governing Council, told Bloomberg Television on July 3, 2026, that "the fact that the oil price decreases will soften the inflation on services." He added that "we were not entering into a new cycle of hikes." That means the June increase was not the start of a long series of rate increases.
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The ECB has two more policy meetings coming up - one in July and another in September. Policymakers are not all on the same page about whether to raise rates again.
Some worry that even though oil is cheaper, the earlier price spikes could still pass through to food, services, and wages. Others point to the recent easing and say the bank should hold rates steady. Market participants have reduced their expectations for additional rate increases this year.
Moulin made it clear the ECB is not committed to any future path. "We are not into forward guidance, so we'll decide when we'll be there," he said. The ECB is not doing that now.
He also said, "the balance of risk is in the right place." That means the ECB thinks the risks of doing too much or too little are roughly balanced.
The ECB's primary mandate is price stability, with a target of 2% inflation. The recent drop in oil prices has brought headline inflation closer to that target, though core inflation remains sticky. Moulin's comments suggest the central bank is cautious about overreacting to one-time price shocks, preferring to wait for clearer signs that inflation is sustainably returning to its goal.
The recent decline in oil prices has provided some relief to the eurozone economy, which had been grappling with elevated energy costs. However, core inflation - excluding volatile food and energy - remains above target, keeping policymakers vigilant. The ECB's decision to hold off on forward guidance leaves markets guessing, with many analysts expecting a pause in rate hikes as long as oil prices stay low and wage pressures do not materialize. The coming months will be critical as the central bank balances the risk of resurgent inflation against the need to support economic growth.
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