European Central Bank holds interest rates, says domestic price pressures 'still high'

The European Central Bank left interest rates unchanged in a unanimous vote on Thursday following June's landmark cut, as it described the potential for a September reduction as "wide open."

"Monetary policy is keeping financing conditions restrictive. At the same time, 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's Governing Council said in a statement.

Recent data has broadly supported its medium-term outlook for inflation to converge at 2%, it added.

The decision — which keeps the key ECB interest rate at 3.75% — was widely expected amid ongoing concern over inflationary pressures, particularly from the labor market.

Euro zone headline inflation dipped to 2.5% in June from 2.6% previously, but the core print — excluding the volatile components of energy, food, alcohol and tobacco — came in above a consensus forecast, holding steady at 2.9%.

Analysts expected the central bank to wait for more data across payrolls, economic growth and productivity before easing monetary policy further.

"Wages are still rising at an elevated rate, making up for the past period of high inflation. Higher nominal wages alongside weak productivity have added to unique labor cost growth, although it decelerated somewhat in the first quarter of this year," ECB President Christine Lagarde said during a news conference.

Lagarde said the central bank expects inflation levels to fluctuate for the rest of the year but decline overall in the second half due to weaker labor costs, the impact of monetary policy and the fading impact of price shocks.

The ECB had cited the inflation outlook, the dynamics of underlying inflation and the strength