ECB pledges low rates but warns about Delta

The European Central Bank will keep interest rates at record lows to boost sluggish inflation, policymakers said on Thursday (July 22).

The ECB also pledged not to raise borrowing costs until it sees inflation reach its 2% target.

It comes after the ECB unveiled a new strategy earlier this month, under which it could allow inflation to edge over that level.

ECB President Christine Lagarde said the euro zone economy is recovering, but that threats still remain.

"The reopening of large parts of the economy is supporting a vigorous bounce-back in the services sector. But the Delta variant of the coronavirus could dampen this recovery in services, especially in tourism and hospitality."

Not all policymakers have supported the approach to interest rates, though Lagarde said an 'overwhelming majority' were in favour.

Governors from indebted countries like Portugal and Italy have argued the ECB's new strategy means it should keep spending.

But inflation hawks like Germany favour tighter policy as they expect price pressures to return soon.

The ECB expects inflation in the euro zone as a whole to hit 1.9% this year before falling back in 2022.

Financial markets are not pricing in a rate hike for at least three years.