Oil prices steady after ECB maintains interest rate

Brent's price rise was marginally capped after the European Central Bank (ECB) kept its key interest rate unchanged.

PHOTO: The European Central Bank's headquarters in Frankfurt, Germany. Getty Images

The ECB maintained its key interest rate at 3.75% at the bank’s 26-member rate-setting council meeting yesterday.

The decision to keep the interest rate unchanged comes as “domestic price pressures are still high, services inflation is elevated and headline inflation is likely to remain above the target well into next year,” the ECB said.

This news has led market participants to contemplate whether the US Federal Reserve (Fed) will follow a similar path at its next Federal Open Market Committee (FOMC) meeting and maintain interest rates at the current level of 5.25-5.5%.

Higher interest rates in the US can make the greenback stronger against other currencies and dampen demand for dollar-denominated commodities like oil.

"It became evident that the central bank [the ECB] is not in a hurry to cut rates and is hesitant to provide forward guidance due to persistent inflation, which is higher than forecasted in the ECB's recent macroeconomic projections," analysts from Saxo Bank said.

However, ECB president Christine Lagarde’s comments following the council meeting raised some hopes about a potential rate cut in September. Risks to economic growth were “tilted to the downside,” she said. “So the question of September and what we do in September is wide open,” Lagarde said.

By Aparupa Mazumder 

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