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September 08, 2022EUROPEAN CENTRAL BANK MONETARY POLICY The European Central Bank (ECB) raised the three key ECB interest rates by 75 basis points. The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 1.25%, 1.50% and 0.75% respectively, with effect from 14 September 2022.
Based on the updated assessment of inflation risks, the Governing Council expects to raise interest rates further to dampen demand and inflation expectations. ECB interest rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach.
The Governing Council intends to continue reinvesting principal payments from maturing securities purchased under the Asset Purchase Program (APP) for an extended period of time past when it starts to raise the key ECB rates. Reinvestment of the principal payments from maturing securities purchased under the Pandemic emergency purchase programme (PEPP) will continue until at least the end of 2024. The Governing Council will continue to monitor bank funding conditions and ensure that the maturing of operations under the third series of targeted longer-term refinancing operations (TLTRO III) does not hamper the smooth transmission of its monetary policy.
Euro Area economy rebounded in the first half of 2022 and expected to stagnate at the end of 2022 and in the first quarter of 2023. Russia's invasion of Ukraine continues to weigh on the confidence of businesses and consumers. High inflation is weighing down households' purchasing power while continuous supply chain constraints and increased uncertainty are having a dampening effect on the economy. Growth in Euro Area is projected to slow from 3.1% in 2022 to 0.9% in 2023 and 1.9% in 2024.
Inflation in the Euro Area increased to 9.1% in August 2022, mainly driven by higher energy and food prices. Price pressures have continued to strengthen and broaden across the economy. Inflation is expected to be elevated for some time, before more moderate energy costs, eased supply disruptions, and normalisation of monetary policy led to a decline. ECB revised up their inflation forecast to 8.1% in 2022, 5.5% in 2023 and 2.3% in 2024.
The next scheduled monetary policy meeting will be on October 27, 2022.
Source: European Central Bank: Monetary Policy Decisions, Monetary Policy Statement (Press Conference)
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