The Governing Council believes that interest rates will still need to rise significantly to ensure a timely return of inflation to the medium-term target of 2%
The Governing Council decided today to increase the three main interest rates of the ECB by 50 basis points at the 3% level and, in line with the significant upward revision of the inflation outlook, expects to increase them further.
Accordingly, the main refinancing rate as well as the marginal funding facility and deposit acceptance facility rates will be increased to 3.00%, 3.25% and 2.50% respectively, with effect from 8 February 2023.
More specifically, the Governing Council considers that interest rates will still need to rise significantly at a steady pace in order to be set at levels that are sufficiently restrictive to ensure a timely return of inflation to the medium-term target of 2%.
Keeping interest rates at restrictive levels will reduce inflation over time by curbing demand and also prevent the risk of a persistent upward shift in inflation expectations.
The Governing Council’s future decisions on policy rates will continue to be data-driven and take a meeting-by-meeting approach.
The Governing Council also decided today on the detailed arrangements for reducing the securities held by the Eurosystem under the asset purchase program (APP). As announced in December, the APP portfolio will be reduced by €15 billion per month on average from the beginning of March until the end of June 2023, and then the pace of this reduction will be determined over time.
Partial reinvestments will generally be conducted in accordance with current practice. Specifically, the remaining reinvestments will be distributed in proportion to the redemption share of securities among the component programs of the APP and, in the context of the public sector purchase program (PSPP), in proportion to the redemption share of securities of each country and between issuing states and supranational issuers. Regarding the Eurosystem’s corporate bond purchases, the remaining reinvestments will be directed more towards issuers with better climate performance. Without prejudice to the ECB’s objective of price stability, this approach will support the gradual decarbonisation of the Eurosystem’s corporate bonds in line with the objectives of the Paris Agreement.
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