By François Rimeu, Senior Strategist, Crédit Mutuel Asset Management

The broad-based moderation in inflation, with headline inflation falling back below 3% in June, reinforces the case for the European Central Bank (ECB) to leave interest rates unchanged at its July meeting.

Our expectations

Following June’s 25 basis point increase, we expect the ECB to keep the deposit facility rate unchanged at 2.25%. The Governing Council is likely to reiterate that future policy decisions will remain data-dependent, while avoiding any guidance on the future path of interest rates. President Christine Lagarde may also confirm that discussions are under way on raising the minimum reserve requirement, which has remained at 1% since 2012. In conclusion

Against a backdrop of persistent geopolitical uncertainty, we expect the ECB to remain cautious over the summer while keeping the door open to another rate hike in September.