February 2, 2023
The Governing Council will continue to maintain interest rates at a steady pace and at sufficiently restrictive levels to allow inflation to return to its 2% medium-term target in time. Accordingly, the Governing Council today decided to raise the three key ECB interest rates by 50 basis points and is expected to raise them further. In light of rising inflation, the Governing Council intends to raise interest rates by another 50 basis points at its next monetary policy meeting in March and then review the path of monetary policy. Keeping interest rates at a restrictive level will eventually reduce inflation by reducing demand and preventing further changes in inflation expectations. In any case, the Governing Council’s future policy rate decisions will be informed and follow a meeting-by-meeting approach.
The Governing Council also decided today on the possibility of reducing the Eurosystem’s holdings of collateral under the Asset Purchase Program (APP). As announced in December, the APP portfolio will be reduced by an average of €15 billion per month from the beginning of March to the end of June 2023, and the pace of further portfolio reduction will be determined over time. Partial reinvestments will be carried out on a large scale in line with existing practices. In particular, the remaining amount of reinvestment will be proportional to each state’s redemption share and the share of national and supranational issuers under each APP component program and Public Sector Purchase Program (PSPP). For Eurosystem corporate bond purchases, the remaining reinvestments are skewed toward issuers with better climate performance. While maintaining the ECB’s objective of price stability, this approach supports the gradual liquidation of the Eurosystem’s corporate bond holdings, in line with the goals of the Paris Agreement.
Detailed methods for reducing APP holdings are described in a separate press release at 15:45 CET.
Key ECB interest rates
The Governing Council decided to raise the three key ECB interest rates by 50 basis points. Accordingly, the interest rate on the main improvement works and the interest rates on the margin loan facility and the deposit facility will be 3.00%, 3.25% and 2.50% respectively with effect from February 8, 2023.
Asset Purchase Program (APP) and Pandemic Emergency Purchase Program (PEPP)
The Governing Council intends to continue reinvesting principal payments from maturing securities purchased under the APP until February 2023. Subsequently, the APP portfolio will shrink at a measurable and predictable rate, as the Eurosystem will not reinvest all of it. Principal payments from maturing securities. The cuts will average up to 15 billion euros per month until the end of June 2023, and the further pace will be determined over time.
As far as PEPP is concerned, the Governing Council intends to reinvest principal payments from maturing securities purchased under the program at least until the end of 2024. Any future PEPP portfolio consolidation will avoid interference in these matters. Appropriate monetary policy stance.
The Governing Council will continue to use flexibility in the reinvestment of redemptions in the PEPP portfolio to prevent risks to monetary policy transmission mechanisms related to the pandemic.
Financial operations again
As banks are repaying their loans based on targeted long-term monetary policy measures, the Governing Council regularly assesses the extent to which targeted lending activities are contributing to the stance of monetary policy.
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The Governing Council is ready to adjust all instruments within its mandate to ensure that inflation returns to the 2% target in the medium term. The transmission buffer is available to deal with unwarranted, disorderly market volatility that poses a significant threat to monetary policy transmission in all euro area countries, thereby enabling the Governing Council to effectively discharge its price stability mandate.
The ECB President will comment on the underlying issues at the press conference today starting at 14:45 CET.
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