ECB holds rates steady and signals caution on September cut

The European Central Bank kept its deposit rate at 2.5 percent on Thursday, pausing after a sequence of cuts that began late last year. The governing council said it needed more evidence on wage growth and services inflation before moving again.

Inflation in the euro zone stood at 2.2 percent in July, close to the bank's 2 percent target, but services prices remained sticky. Reuters reported that several council members had argued for a cut, while others favoured waiting until September's staff projections.

President Christine Lagarde told reporters the bank was not pre-committing to a particular path. She said decisions would remain data-dependent and meeting-by-meeting. The bank would watch negotiated wage settlements and corporate pricing behaviour closely.

Bloomberg put the market-implied probability of a September cut at roughly 60 percent, down from about 75 percent before the meeting. Bond yields rose across the euro area after the decision.

The pause leaves the ECB with limited room if growth disappoints. Survey data this week pointed to a fragile manufacturing sector, particularly in Germany, even as services activity held up.