Unchanged, for the first time since July 2022, the European Central Bank (ECB) decided to keep its three main interest rates unchanged, in its session held on Thursday in Athens, setting thus a pause in the 10 consecutive increases in the interest rates of the euro.
According to the ECB, key interest rates “are at levels which, if maintained for a sufficiently long period of time, will make a significant contribution” to the achievement of the medium-term inflation target of 2%.
Specifically, in a statement , the Governing Council of the ECB states that “incoming information broadly confirms its previous assessments of the medium-term outlook for inflation”.
“Inflation is still expected to remain very high for a very long time, and domestic price pressures remain strong,” he underlines. At the same time, the ECB Governing Council reports that “inflation eased significantly in September, partly due to strong benchmark effects, and most measures of core inflation continued to weaken”.
“The previous interest rate hikes decided by the Governing Council continue to be strongly transmitted to funding conditions. This has an increasingly dampening effect on demand and therefore contributes to the decline in inflation,” the ECB emphasizes.
The interest rate on the main refinancing operations, as well as the interest rates on the marginal financing facility and the deposit facility will remain unchanged to 4.50%, 4.75% and 4.00% respectively.
In the announcement, the Governing Council states its determination “to ensure that inflation returns to the medium-term objective of 2% in time” .
Based on its current assessment, the Governing Council considers that “the ECB's key interest rates are at levels which, if sustained for a sufficiently long period of time, will make a significant contribution to this objective”.
” Its future decisions will ensure that its policy rates will be set at sufficiently restrictive levels for as long as necessary,” he notes.
The Governing Council also states that it will continue to take an evidence-based approach to determining the appropriate level and duration of accommodative monetary policy. Specifically, it says that its interest rate decisions will be based on its assessment of the outlook for inflation in light of incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.< /p>
Asset Purchase Program (APP) and Pandemic Emergency Asset Purchase Program (PEPP)
Regarding the APP portfolio, the ECB Board states in the announcement that it is “being reduced in a measured and predictable rate, as the Eurosystem no longer reinvests principal amounts from the redemption of securities at maturity”.
With regard to the PEPP program, the Board of Directors states that it intends to reinvest the capital amounts from the redemption of securities acquired under the program at their maturity at least until the end of 2024.
“In in any case, the future roll-off of the PEPP portfolio will be regulated in such a way as to avoid interference with the appropriate direction of monetary policy”, he adds.
Also, the Governing Council states that it will continue to implements “flexibility in the reinvestment of amounts from the redemption of PEPP portfolio securities as they mature in order to address risks to the monetary policy transmission mechanism related to the pandemic”.
Acts refinancing operations
According to the announcement, as banks repay the amounts borrowed under targeted longer-term refinancing operations, the Governing Council “will regularly assess how the targeted financing operations and the ongoing their repayment contribute to the direction of his monetary policy”.