The ECB once again left interest rates unchanged at today’s board meeting. Therefore, the interest rate on the main refinancing operations as well as the interest rates on the marginal financing facility and the deposit-taking facility will remain unchanged at 4.50%, 4.75% and 4.00% respectively.

Tight monetary policy is squeezing demand and this is helping to de-escalate inflation, the statement noted. At the same time, it is pointed out that future monetary policy decisions will ensure that interest rates will remain at restrictive levels for as long as necessary

Decisions will continue to be taken on the basis of evidence, the ECB points out.

The ECB states in detail in its announcement

The Governing Council of the European Central Bank decided today to keep the three main interest rates of the ECB unchanged, for the third consecutive meeting.

Incoming information broadly confirms its previous assessments of the medium-term outlook for inflation. Apart from an upward benchmark effect on headline inflation, which is related to energy prices, the downward trend in core inflation has continued and previous interest rate increases continue to be strongly transmitted to financing conditions. Tight financing conditions are curbing demand and this is helping to push inflation down.

The Governing Council is determined to ensure that inflation returns to its medium-term target of 2% in time. Based on its current assessment, the Governing Council considers that the key ECB interest rates are at levels which, if sustained for a sufficiently long period of time, will make a significant contribution to this objective. The Board’s future decisions will ensure that its policy rates are set at sufficiently restrictive levels for as long as necessary.

The Governing Council will continue to take an evidence-based approach to determining the appropriate level and duration of accommodative monetary policy. In particular, the Governing Council’s 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.

Key ECB interest rates

The interest rate on the main refinancing operations as well as the interest rates on the marginal financing facility and the deposit acceptance facility will remain unchanged at 4.50%, 4.75% and 4.00% respectively.

Asset Purchase Program (APP) and Pandemic Emergency Asset Purchase Program (PEPP)
The APP portfolio is being reduced at a measured and predictable pace, as the Eurosystem no longer reinvests principal amounts from redeeming securities at maturity.

The Board of Directors intends to continue to fully reinvest the principal amounts from the redemption of securities acquired under the PEPP program upon their maturity during the first half of 2024. During the second half of the year, it intends to reduce the size PEPP portfolio by €7.5 billion per month on average. The Board intends to end reinvestments under the PEPP scheme at the end of 2024.

The Governing Council will continue to apply flexibility to 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.

Refinancing operations

As banks repay the amounts borrowed under targeted longer-term refinancing operations, the Governing Council will regularly assess how targeted financing operations and their continued repayment contribute to the direction of its monetary policy.

The Governing Council stands ready to deploy all instruments at its disposal within the limits of its mandate to ensure that inflation returns to the 2% target over the medium term and to safeguard the smooth functioning of the monetary transmission mechanism policy. In addition, the Transmission Protection Instrument (TPI) is available to hedge against undesired, disorderly market developments that pose a serious threat to the transmission of monetary policy across euro area countries, thus allowing the Administrative Council to more effectively fulfill its mission of price stability.

ECB President Christine Lagarde will analyze the considerations that led to these decisions during a press conference to be held today at 14:45 (CET).