Monetary policy decisions

The ECB is determined to address inflation concerns and ensure that it returns to its 2% medium-term target in a timely manner. To achieve this, the Governing Council has decided to raise the three key ECB interest rates by 25 basis points.
Therefore, the interest rate on the main refinancing operations will be increased to 4.25% and the interest rates on the marginal lending facility and the deposit facility will be increased to 4.50% and 3.75%, respectively. These changes will take effect from 2 August 2023.
This increase reflects their assessment of the inflation outlook, underlying inflation dynamics, and monetary policy transmission strength. Despite a decline in inflation, it is expected to remain above target for an extended period. Past rate increases have had a significant impact on financing conditions, which has been affecting demand and, consequently, inflation levels.
Moving forward, the Governing Council commits to maintaining the key ECB interest rates at sufficiently restrictive levels for as long as necessary to bring inflation back to the 2% target. Their approach will continue to be data-dependent, considering economic and financial data, underlying inflation dynamics, and monetary policy transmission strength in making interest rate decisions.
The Governing Council has also set the remuneration of minimum reserves at 0% to maintain control over monetary policy effectiveness and ensure interest rate decisions are fully passed through to money markets. Additionally, this decision will lead to a reduction in the amount of interest paid on reserves, enhancing the efficiency of monetary policy implementation.
Regarding asset purchase programs, the APP portfolio is gradually decreasing due to non-reinvestment of principal payments from maturing securities.
As for the PEPP, the Governing Council intends to reinvest principal payments from maturing securities until at least the end of 2024. They will apply flexibility in reinvesting redemptions in the PEPP portfolio to counter risks related to the pandemic’s impact on the monetary policy transmission mechanism.
The ECB is closely monitoring how banks‘ repayments of borrowed amounts under targeted lending operations affect the monetary policy stance. The Governing Council stands ready to adjust all instruments within its mandate to achieve its 2% inflation target and maintain smooth monetary policy transmission. Furthermore, they have the Transmission Protection Instrument at their disposal to counter any market dynamics that threaten the transmission of monetary policy across all euro area countries. This ensures the effective delivery of their price stability mandate.