In the announcement of the central bank, it is noted that with the latest forecasts of its executives, inflation has been revised downwards and is now expected to average 2.3% in 2024, 2.0% in 2025 and 1.9% in 2026. .
The Governing Council decided today to keep the ECB’s three key interest rates unchanged. After the last Governing Council meeting in January, inflation eased further. In the most recent ECB staff projections, inflation has been revised downwards, notably for 2024, mainly reflecting a smaller contribution from energy prices.
Inflation is now projected to average 2.3% in 2024, 2.0% in 2025 and 1.9% in 2026. Inflation projections excluding energy and food prices have also been revised downwards to average 2.6% in 2024, 2.1% in 2025 and 2.0% in 2026. Although most measures of core inflation have weakened further, domestic price pressures remain high, partly due to strong wage growth.
Financing conditions are tight and past interest rate hikes continue to dampen demand, helping to push inflation down. Experts have revised down the projection for growth to 0.6% for 2024, and economic activity is expected to remain subdued in the near term. Experts then expect the economy to recover and grow at a rate of 1.5% in 2025 and 1.6% in 2026, supported initially by consumption and later by investment.
The Governing Council is determined to ensure that inflation returns to its medium-term target of 2% in time. Based on its current assessment, the Governing Council considers that the key ECB interest rates are at levels which, if sustained for a sufficiently long period of time, will make a significant contribution to this objective. Future Board decisions will ensure that policy rates are set at sufficiently restrictive levels for as long as necessary.
The Governing Council will continue to take an evidence-based approach to determining the appropriate level and duration of accommodative monetary policy. In particular, the Governing Council’s interest rate decisions will be based on its assessment of the outlook for inflation in light of incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.
The interest rate on the main refinancing operations as well as the interest rates on the marginal financing facility and the deposit acceptance facility will remain unchanged at 4.50%, 4.75% and 4.00% respectively.
Asset Purchase Program (APP) and Pandemic Emergency Asset Purchase Program (PEPP)
The APP portfolio is being reduced at a measured and predictable pace, as the Eurosystem no longer reinvests principal amounts from redeeming securities at maturity.
The Board of Directors intends to continue to fully reinvest the principal amounts from the redemption of securities acquired under the PEPP program upon their maturity during the first half of 2024. During the second half of the year, it intends to reduce the portfolio PEPP by €7.5 billion per month on average. The Board intends to end reinvestments under the PEPP scheme at the end of 2024.
The Governing Council will continue to apply flexibility to the reinvestment of amounts from the redemption of PEPP portfolio securities as they mature in order to address risks to the monetary policy transmission mechanism related to the pandemic.
As banks repay the amounts borrowed under targeted longer-term refinancing operations, the Governing Council will regularly assess how targeted financing operations and their continued repayment contribute to the direction of its monetary policy.
The Governing Council stands ready to deploy all instruments at its disposal within the limits of its mandate to ensure that inflation returns to the 2% target over the medium term and to safeguard the smooth functioning of the monetary transmission mechanism policy.
In addition, the Transmission Protection Instrument (TPI) is available to hedge once morest undesired, disorderly market developments that pose a serious threat to the transmission of monetary policy across euro area countries, thus allowing the Administrative Council to more effectively fulfill its mission of price stability.
The President of the ECB will analyze the considerations that led to these decisions during a press conference to be held today at 14:45 (CET).
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