Financing conditions remain restrictive and past increases in interest rates continue to weigh on demand, which contributes to the moderation of inflation…
(Boursier.com) — Unsurprisingly, the European Central Bank does not touch its rates. The interest rate of the main refinancing operations as well as those of the marginal lending facility and the deposit facility will remain unchanged, at 4.50%, 4.75% and 4.00% respectively.
The available information broadly confirms the Governing Council’s previous assessment of the medium-term inflation outlook. The decline in inflation continued, mainly due to the slowdown in the rise in prices of food and goods. Most measures of underlying inflation are falling, wage growth is gradually subsiding and companies are absorbing some of the increase in labor costs through their profits. Financing conditions remain restrictive and past increases in interest rates continue to weigh on demand, contributing to the moderation of inflation. But internal price pressures are strong and are keeping the rise in service prices at a high level.
The Governing Council is determined to ensure that inflation returns to its medium-term target of 2% as soon as possible. He believes that the ECB’s key interest rates are at levels which strongly contribute to the ongoing disinflation process. Future decisions by the Governing Council will ensure that its policy rates remain set at sufficiently restrictive levels for as long as necessary. If the Governing Council’s updated assessment of the inflation outlook, underlying inflation dynamics and the strength of monetary policy transmission would further strengthen its confidence in the sustainable convergence of inflation towards the target, it would be appropriate to reduce the current restrictive nature of monetary policy. In any event, the Governing Council will maintain a data-driven approach to appropriately determine, on a meeting-by-meeting basis, the degree and duration of restrictive guidance, and does not commit to doing so. advances on a particular rate path.
The asset purchase program (APP) portfolio is contracting at a measured and predictable pace, as the Eurosystem no longer reinvests principal repayments from maturing securities.
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During the first half of 2024, the Governing Council intends to continue the full reinvestment of principal repayments of maturing securities acquired under the Pandemic Emergency Purchase Program (PEPP). ). It plans to reduce this portfolio by 7.5 billion euros per month on average in the second half of the year. The Governing Council intends to end reinvestments under the PEPP at the end of 2024.
The Governing Council will continue to demonstrate flexibility in reinvesting repayments of maturing securities held in the PEPP portfolio, in order to counter pandemic-related risks to the monetary policy transmission mechanism.
As banks repay amounts borrowed under the targeted longer-term refinancing operations, the Governing Council will regularly assess the contribution of the targeted lending operations and these repayments to its monetary policy stance.
The Governing Council stands ready to adjust all of its instruments, within the framework of its mandate, to ensure the return of inflation towards its objective of 2% in the medium term and to preserve the good transmission of monetary policy . Furthermore, the transmission protection instrument is available to combat unjustified, disorderly market dynamics that pose a serious threat to the transmission of monetary policy to all euro area countries, which will allow the Governing Council to fulfill its mandate of maintaining price stability more effectively.
The President of the ECB will comment on these decisions during a press conference which will start at 2:45 p.m.