In its October 2023 meeting, the European Central Bank (ECB) decided to maintain its three key interest rates, signaling a commitment to addressing persistently high inflation while acknowledging recent declines. Here are the key outcomes:
Interest Rates Unchanged:
- The ECB opted to keep the main refinancing rate at 4.50%, the rate on the marginal lending facility at 4.75%, and the deposit facility rate at 4.00%.
Inflation Assessment:
- The ECB acknowledged that while recent inflation has decreased, it remains high due to lingering effects. The internal price pressures continue to be significant.
- The bank attributed the decline in inflation to strong base effects, and most indicators of underlying inflation continue to show a downward trend.
- The previous rate hikes by the ECB continue to impact financing conditions, contributing to a decline in inflation.
Forward Guidance on Rates:
- The ECB expressed determination to ensure a timely return of inflation to the medium-term target of 2%. The current level of ECB interest rates, if sustained, is expected to contribute significantly to this goal.
- Future decisions will aim to keep interest rates at a sufficiently restrictive level for as long as necessary.
Asset Purchase Programs:
- The Asset Purchase Program (APP) holdings will decrease gradually and predictably, with the Eurosystem not reinvesting proceeds from maturing securities.
- For the Pandemic Emergency Purchase Programme (PEPP), the ECB intends to reinvest proceeds from maturing securities until at least the end of 2024. The phasing out of the PEPP portfolio will be managed to avoid disrupting the appropriate monetary policy course.
Refinancing Operations:
- The ECB will periodically assess the impact of targeted longer-term refinancing operations (TLTRO) repayments on its monetary policy stance.
Flexibility and Readiness:
- The ECB is ready to adjust all its instruments within its mandate to ensure the medium-term return of inflation to the target of 2% and to maintain the smooth functioning of the monetary policy transmission.
- The Transmission Protection Instrument is available to counter unjustified, disorderly market dynamics that pose a serious threat to policy transmission in the Euro area.
Press Conference:
- The ECB President will provide detailed explanations of the considerations behind these decisions in a press conference at 14:45 CET.