• ECB policymakers are leaning toward a July pause if energy prices remain broadly unchanged, according to people familiar with the matter.
  • The central bank's projections still embed two more rate hikes, keeping a September move on the table if inflation pressures persist.
  • A material surge in crude prices would be needed to trigger a July hike, sources said.

ECB Rate Path Hinges on Energy Prices

European Central Bank policymakers are weighing a potential pause in July if energy prices stay near current levels, according to people familiar with the matter. The shift toward flexibility comes as officials await more data on energy price trajectories and inflation dynamics before committing to further tightening.

"The general view has moved toward a data-dependent approach rather than a pre-committed July hike," one source said, speaking on condition of anonymity. A clearer signal is expected only after examining forthcoming energy data.

However, the ECB's internal projections still assume two more rate increases beyond a potential June pause, meaning a September hike remains possible if inflation proves stubborn. "Without a sustained decline in energy costs, a September move is very much alive," another person familiar with the discussions said.

Brent crude prices have fluctuated in recent weeks amid geopolitical tensions and demand uncertainty. ECB policymakers noted that a material surge in crude prices would be required to back a July increase, according to the sources.

The central bank has navigated a period of elevated energy costs since 2022, emphasizing data-dependence over forward guidance. The upcoming July decision could be a hold or a cautious hike depending on incoming data, with markets bracing for potential repricing of rate-sensitive assets if September action looms.

Attempts to reach ECB spokespeople for comment were unsuccessful.

Correction: An earlier version of this article misstated the timing of potential rate hikes. The ECB's projections embed two more hikes beyond a possible June pause, not necessarily in July and September.