ECB keeps rates on hold, leaves room for more hikes

FRANKFURT, July 23 (Reuters) - The European Central Bank kept borrowing costs on hold on Thursday but left room for more tightening in the coming months as a widening conflict in the Middle East pushed up energy prices again.

The ECB kept its benchmark deposit rate at 2.25% but said it was "closely monitoring the intensity and duration of the shock, as well as its indirect and second-round effects".

"The outlook for energy prices, while highly volatile, currently stands close to the baseline of the June Eurosystem staff projections and well above the levels recorded prior to the conflict in the Middle East," the ECB said in a press release.

"Uncertainty remains high and the full inflationary impact of the energy shock has yet to play out."

Financial markets are pricing in roughly two more hikes by the end of the year, starting at the ECB's next meeting on September 9-10. 

The ECB raised rates for the first time in nearly three years in June but a string of benign data on prices, wages, economic activity and inflation expectations since then has made a quick follow-up step less urgent and policymakers have called for patience.  

Thursday's decision leaves the rates at which banks can borrow from the ECB for a day and a week at 2.65% and 2.40%, respectively. 

(Reporting by Francesco Canepa; Editing by Catherine Evans)