Monetary policy decisions

The Governing Council today decided to lower the three key ECB interest rates by 25 basis points. In particular, the decision to lower the deposit facility rate – the rate through which the Governing Council steers the monetary policy stance – is based on its updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.

The removed: incoming information on inflation shows that the disinflationary added: disinflation process is well on track. removed: The added: Staff see headline inflation removed: outlook is also affected by added: averaging 2.4% in 2024, 2.1% in 2025, 1.9% in 2026 and 2.1% in 2027 when the expanded EU Emissions Trading System becomes operational. For inflation excluding energy and food, staff project an average of 2.9% in 2024, 2.3% in 2025 and 1.9% in both 2026 and 2027.

added: Most measures of underlying inflation suggest that inflation will settle at around the Governing Council’s 2% medium-term target on a sustained basis. Domestic inflation has edged down but remains high, mostly because wages and prices in certain sectors are still adjusting to the past inflation surge with a substantial delay.

added: Financing conditions are easing, as the Governing Council’s recent removed: downside surprises in indicators added: interest rate cuts gradually make new borrowing less expensive for firms and households. But they continue to be tight because monetary policy remains restrictive and past interest rate hikes are still transmitting to the outstanding stock of added: credit.

added: Staff now expect a slower economic removed: activity. Meanwhile, financing conditions remain restrictive.

removed: Inflation is expected to rise added: recovery than in the removed: coming months, before declining to target added: September projections. Although growth picked up in the removed: course added: third quarter of removed: next year. Domestic inflation remains high, as wages are still added: this year, survey indicators suggest it has slowed in the current quarter. Staff see the economy growing by 0.7% in 2024, 1.1% in 2025, 1.4% in 2026 and 1.3% in 2027. The projected recovery rests mainly on rising removed: at an elevated pace. At added: real incomes – which should allow households to consume more – and firms increasing investment. Over time, the removed: same time, labour cost pressures are set to continue easing gradually, with profits partially buffering their impact on inflation. added: gradually fading effects of restrictive monetary policy should support a pick-up in domestic demand.

The Governing Council is determined to ensure that inflation removed: returns to added: stabilises sustainably at its 2% medium-term removed: target in a timely manner. added: target. It will removed: keep policy rates sufficiently restrictive for as long as necessary to achieve this aim. The Governing Council will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate removed: level and duration of restriction. added: monetary policy stance. In particular, removed: its added: the Governing Council’s interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. The Governing Council is not pre-committing to a particular rate path.

Key ECB interest rates

The Governing Council today decided to lower the three key ECB interest rates by 25 basis points. Accordingly, the interest rates on the deposit facility, the main refinancing operations and the marginal lending facility will be decreased to removed: 3.25%, added: 3.00%, 3.15% and 3.40% removed: and 3.65% respectively, with effect from removed: 23 October added: 18 December 2024.

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

The APP portfolio is declining at a measured and predictable pace, as the Eurosystem no longer reinvests the principal payments from maturing securities.

The Eurosystem no longer reinvests all of the principal payments from maturing securities purchased under the PEPP, reducing the PEPP portfolio by €7.5 billion per month on average. The Governing Council removed: intends to added: will discontinue reinvestments under the PEPP at the end of 2024.

removed: 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

removed: As banks are repaying added: Banks will repay the added: remaining amounts borrowed under the targeted longer-term refinancing removed: operations, added: operations this month, which concludes this part of the removed: Governing Council will regularly assess how targeted lending operations and their ongoing repayment are contributing to its monetary policy stance. added: balance sheet normalisation process.

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The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation removed: returns to added: stabilises sustainably at its 2% target over the medium term and to preserve the smooth functioning of monetary policy transmission. 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.