Monetary policy decisions

removed: The Governing Council will stay the course in raising interest rates significantly at a steady pace and in keeping them at levels that are sufficiently restrictive added: Inflation is projected to removed: ensure a timely return of inflation to its 2% medium-term target. Accordingly, added: remain too high for too long. Therefore, the Governing Council today decided to removed: raise added: increase the three key ECB interest rates by 50 basis removed: points and it expects added: points, in line with its determination to removed: raise them further. In view added: ensure the timely return of added: inflation to the removed: underlying inflation pressures, added: 2% medium-term target. The elevated level of uncertainty reinforces the removed: Governing Council intends to raise interest rates by another 50 basis points at its next monetary policy meeting in March and it will then evaluate the subsequent path of its monetary policy. Keeping interest rates at restrictive levels will over time reduce inflation by dampening demand and will also guard against the risk added: importance of a removed: persistent upward shift in inflation expectations. In any event, added: data-dependent approach to the Governing Council’s removed: future policy rate removed: decisions added: decisions, which will removed: continue to be removed: data-dependent added: determined by its assessment of the inflation outlook in light of the incoming economic and removed: follow a meeting-by-meeting approach. added: financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.

The Governing Council removed: today also decided on added: is monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the removed: modalities added: euro area. The euro area banking sector is resilient, with strong capital and liquidity positions. In any case, the ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy.

added: The new ECB staff macroeconomic projections were finalised in early March before the recent emergence of financial market tensions. As such, these tensions imply additional uncertainty around the baseline assessments of inflation and growth. Prior to these latest developments, the baseline path for removed: reducing added: headline inflation had already been revised down, mainly owing to a smaller contribution from energy prices than previously expected. ECB staff now see inflation averaging 5.3% in 2023, 2.9% in 2024 and 2.1% in 2025. At the removed: Eurosystem’s holdings added: same time, underlying price pressures remain strong. Inflation excluding energy and food continued to increase in February and ECB staff expect it to average 4.6% in 2023, which is higher than foreseen in the December projections. Subsequently, it is projected to come down to 2.5% in 2024 and 2.2% in 2025, as the upward pressures from past supply shocks and the reopening of removed: securities under the removed: asset purchase programme (APP). As communicated added: economy fade out and as tighter monetary policy increasingly dampens demand.

added: The baseline projections for growth in 2023 have been revised up to an average of 1.0% as a result of both the decline in energy prices and the economy’s greater resilience to the challenging international environment. ECB staff then expect growth to pick up further, to 1.6%, in both 2024 and 2025, underpinned by a robust labour market, improving confidence and a recovery in real incomes. At the same time, the pick-up in growth in 2024 and 2025 is weaker than projected in December, removed: the APP portfolio will decline by €15 billion per month on average from the beginning of March until the end of June 2023, and the subsequent pace of portfolio reduction will be determined over time. Partial reinvestments will be conducted broadly in line with current practice. In particular, the remaining reinvestment amounts will be allocated proportionally added: owing to the removed: share added: tightening of removed: redemptions across each constituent programme of the APP and, under the public sector purchase programme (PSPP), to the share of redemptions of each jurisdiction and across national and supranational issuers. For the Eurosystem’s corporate bond purchases, the remaining reinvestments will be tilted more strongly towards issuers with a better climate performance. Without prejudice to the ECB’s price stability objective, this approach will support the gradual decarbonisation of the Eurosystem’s corporate bond holdings, in line with the goals of the Paris Agreement.

removed: The detailed modalities for reducing the APP holdings are described in a separate press release to be published at 15:45 CET. added: monetary policy.

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 refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to removed: 3.00%, 3.25% added: 3.50%, 3.75% and removed: 2.50% added: 3.00% respectively, with effect from removed: 8 February added: 22 March 2023.

Asset purchase programme (APP) and pandemic emergency purchase programme (PEPP)

The removed: Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP until the end of February 2023. Subsequently, the APP portfolio removed: will decline added: is declining at a measured and predictable pace, as the Eurosystem removed: will added: does not reinvest all of the principal payments from maturing securities. The decline will amount to €15 billion per month on average until the end of June 2023 and its subsequent pace will be determined over time.

As concerns the PEPP, the Governing Council intends to reinvest the principal payments from maturing securities purchased under the programme until at least the end of 2024. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance.

The Governing Council will continue applying flexibility in reinvesting redemptions coming due in the PEPP portfolio, with a view to countering risks to the monetary policy transmission mechanism related to the pandemic.

Refinancing operations

As banks are repaying the amounts borrowed under the targeted longer-term refinancing operations, the Governing Council will regularly assess how targeted lending operations are contributing to its monetary policy stance.

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The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation returns to its 2% target over the medium removed: term. added: term and to preserve the smooth functioning of monetary policy transmission. The added: ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed. Moreover, the Transmission Protection Instrument is available to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across all euro area countries, thus allowing the Governing Council to more effectively deliver on its price stability mandate.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:45 CET today.