The European Central Bank kept interest rates unchanged for the fifth consecutive meeting, enhancing expectations for rate cut at the June meeting.

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

ECB Governing Council vows to ensure inflation returns to 2% medium-term target on time. It believes that key interest rates are at levels that contribute significantly to the ongoing deflationary process.

Her press conference is expected shortly Christine Lagarde.

The announcement of the ECB

The incoming information broadly confirms the previous assessment of the Governing Council of the European Central Bank on the medium-term outlook for inflation. Inflation continued to decline, led by lower food and goods price inflation. Most measures of underlying inflation are falling, the rate of wage growth is gradually moderating and businesses are absorbing some of the rise in labor costs into their profits. Financing conditions remain tight and past interest rate hikes continue to dampen demand, helping to push inflation down. Nevertheless domestic price pressures are strong and keep service price inflation high.

The Governing Council is determined to ensure that inflation returns to its medium-term target of 2% in time. He believes that the ECB’s key interest rates are at levels that contribute significantly to the ongoing deflationary process. The Board’s future decisions will ensure that its policy rates remain sufficiently restrictive for as long as necessary. If the Governing Council’s updated assessment of the outlook for inflation, the dynamics of core inflation and the strength of monetary policy transmission further strengthened its belief that inflation is converging towards target in a sustained manner, it would be appropriate to reduce the current level of monetary policy tightening. In each case, the Board will continue to pursue an approach which is based on available data and takes decisions from meeting to meeting to determine the appropriate level and duration of accommodative monetary policy, and does not commit in advance to a specific course of interest rates.

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 ia 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 scheme when they expire during the first half of 2024. During the second half of the year, it intends to reduce the size of the 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 Board will continue to apply flexibility in the reinvestment of amounts from redeeming PEPP portfolio securities as they mature to address risks to the monetary policy transmission mechanism related to the pandemic.

Refinancing operations

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