(Finance) – The ECB it goes on to the bitter end and announces something new interest rates rise by a quarter of a point. The Governing Council has in fact decided to raise the three reference interest rates of the ECB by 25 basis points, bringing the one on the main refinancing operations at 4.50%, that on marginal refinancing operations at 4.75% and that on deposits at 4%, with effect from 20 September 2023.
The Asset Purchase Program (APA) portfolio is shrinking at a measured and predictable pace – confirms the Eurotower – as the Eurosystem no longer reinvests the capital repaid on maturing securities. And as for the PEPP (pandemic emergency purchase programme), the Governing Council intends reinvest the repaid capital on maturing securities “flexibly” at least until the end of 2024.
Against the repayments of amounts received by banks in targeted longer-term refinancing operations, the Governing Council will regularly review how ongoing targeted operations and repayments contribute to the stance of monetary policy.
Inflation still too high
“Today’s rate increase – states the Frankfurt Institute – reflects the assessment of the Governing Council of the inflation prospectsas deduced from the most recent economic and financial data, of dynamics of underlying inflation and the intensity of monetary policy transmission”.
“Inflation continues to decline, but is still expected to remain too high for too long a period of time“. explains the ECB, reiterating that “the Governing Council is determined to ensure the timely return of inflation to the target of 2% in the medium term”.
The new macroeconomic forecasts
The September macroeconomic projections formulated for the euro area by ECB experts indicate a inflation rate averaging 5.6% in 2023to 3.2% in 2024 and 2.1% in 2025, due to a upward revision for 2023 and 2024 and downwards for 2025. The upward correction – it is explained – mainly reflects the more sustained evolution of energy prices. The underlying price pressures remain highalthough most indicators have started to decline.
The ECB experts have instead slightly revised downwards core inflation projections, net of the energy and food component, which would be located on average 5.1% in 2023, to 2.9% in 2024 and 2.2% in 2025.
“Past interest rate increases decided by the Governing Council continue to be passed on with force. Financing conditions have tightened further and are increasingly dampening demand, which is an important factor in bringing inflation back to target,” he explains the ECB reviewing growth projections are “significantly downward”. of the Eurozone, indicated to 0.7% in 20231% in 2024 and 1.5% in 2025.
High rates for a long time
“The Governing Council considers that the key ECB interest rates have reached levels which, maintained for a sufficiently long periodwill make a substantial contribution to a timely return of inflation to target,” the Eurotower note reads, adding that “future decisions of the Governing Council will ensure that the key ECB interest rates are set at sufficiently restrictive levels as long as necessary”.
“The Board of Directors – he assures himself – will continue to follow a data-driven approach in determining the appropriate level and duration of the restriction”.
The Board says “ready to adapt all its tools within the scope of its mandate for ensure that inflation returns to the 2% target in the medium term and to preserve the orderly functioning of the monetary policy transmission mechanism. Furthermore, the monetary policy transmission mechanism protection tool can be used to counteract unjustified, disorderly market dynamics that seriously jeopardize the transmission of monetary policy in all euro area countries, thus enabling the Governing Council to more effectively fulfill its mandate of price stability”.
The President of the ECB will explain the reasons for these decisions in the press conference which will take place this afternoon at 2.45pm (Central European time).