The European Central Bank maintains its interest rates at 4.5% for the fifth consecutive meeting

He European Central Bank (ECB) has decided to maintain its interest rates at 4.5% for the fifth consecutive meeting, as expected. The entity has not changed its rates since September 2023, when it decided to raise them 25 basis points to the current historical maximum of 4.5%.

European Central Bank statement

The Governing Council has decided today to keep the ECB's three official interest rates unchanged. The most recent information has broadly confirmed the Governing Council's previous assessment of the medium-term inflation outlook. Inflation has continued to decline, thanks to the drop in the prices of food and goods. Most indicators of core inflation are declining, wage growth is gradually moderating and companies are absorbing some of the increase in labor costs in their profits. Financing conditions remain tight and previous interest rate increases continue to dampen demand, which is helping to reduce inflation. However, domestic inflationary pressures are intense and keep service price inflation at high levels.

The Governing Council is determined to ensure that inflation returns soon to its medium-term target of 2%. It considers that the ECB's official interest rates are at levels that are contributing significantly to the ongoing disinflation process. Future decisions by the Governing Council will ensure that its official interest rates remain sufficiently restrictive for as long as necessary. If the Governing Council's updated assessment of the inflation outlook, underlying inflation dynamics and the intensity of monetary policy transmission further reinforced its confidence that inflation is converging towards the target on a sustained basis, it would be appropriate to reduce the current level of monetary policy tightening. In any case, to determine the appropriate level of restriction and its duration, the Governing Council will continue to apply a data-driven approach, where decisions are made at each meeting, without committing in advance to a specific rate path.

ECB official interest rates

The interest rate on the main financing operations and the interest rates on the marginal credit facility and the deposit facility will remain unchanged at 4.50%, 4.75% and 4.00%, respectively.

Asset Purchase Program (APP) and Pandemic Emergency Purchase Program (PEPP)

The size of the APP portfolio is reducing at a measured and predictable pace, as the Eurosystem has stopped reinvesting the principal of maturing securities.

The Governing Council plans to continue reinvesting in full during the first half of 2024 the principal of the securities acquired under the PEPP that mature. In the second half of the year, it expects to reduce the PEPP portfolio by 7.5 billion euros per month on average. The Governing Council plans to end reinvestments under the PEPP at the end of 2024.

The Governing Council will continue to act with flexibility in the reinvestment of the principal of the PEPP portfolio securities that mature, with the aim of counteracting the risks to the monetary policy transmission mechanism related to the pandemic.

Financing operations

As credit institutions repay amounts obtained under targeted longer-term refinancing operations, the Governing Council will periodically assess how these operations and their current repayments are contributing to the direction of their monetary politics.

The Governing Council is prepared to adjust all its instruments within the framework of its mandate to ensure that inflation returns to its target of 2% in the medium term and to preserve the smooth functioning of monetary policy transmission. Furthermore, the Transmission Protection Instrument is available to counter unwanted or disorderly market dynamics that constitute a serious threat to the transmission of monetary policy in all euro area countries, allowing the Governing Council fulfill its price stability mandate more effectively.