The European Central Bank (ECB) left its main refinancing rate unchanged
at 4.50 per cent on Thursday, as widely expected. The ECB’s interest rates on
the marginal lending facility and the deposit facility were also left unchanged
at 4.75 per cent and 4.00 per cent, respectively.
In its policy statement, the ECB noted:
- Inflation is likely to pick up again temporarily in the near term;
- Inflation is expected to decline gradually over the course of next
year, before approaching the 2% target in 2025;
-Headline inflation is seen to average 5.4% in 2023, 2.7% in 2024, 2.1%
in 2025 and 1.9% in 2026 (figures for 2023 and 2024 were downwardly revised from
5.6% and 3.2%, respectively);
- Domestic price pressures remain elevated, primarily owing to strong
growth in unit labour costs;
- Past interest rate increases continue to be transmitted forcefully to
the economy. Tighter financing conditions are dampening demand, and this is
helping to push down inflation;
- Economic growth is predicted to remain subdued in the near term;
- Growth is seen picking up from an average of 0.6% for 2023 to 0.8% for
2024, and to 1.5% for both 2025 and 2026;
- Governing Council is determined to ensure that inflation returns to
its 2% medium-term target in a timely manner;
- Governing Council considers that the key ECB interest rates are at
levels that, maintained for a sufficiently long duration, will make a
substantial contribution to this goal;
- Governing Council’s future decisions will ensure that its policy rates
will be set at sufficiently restrictive levels for as long as necessary;
- Governing Council will continue to follow a data-dependent approach to
determining the appropriate level and duration of restriction;
- Governing Council also decided today to advance the normalisation of
the Eurosystem’s balance sheet;
- Over the second half of the year, it intends to reduce the PEPP
portfolio by EUR7.5 billion per month on average;
- Governing Council intends to discontinue reinvestments under the PEPP
at the end of 2024