ECB Monetary policy decisions & Press Conference

The ECB announced important monetary policy decisions on 14 September 2023 in response to the ongoing challenge of elevated inflation. Despite a declining trend, inflation remains persistently high and is expected to continue exceeding the ECB’s 2% medium-term target. To address this issue, the ECB has taken several key measures.
Firstly, the ECB has decided to raise its three key interest rates by 25 basis points each. These rates include the main refinancing rate, the marginal lending facility rate, and the deposit facility rate. Effective from 20 September 2023, these rates will stand at 4.50%, 4.75%, and 4.00%, respectively. This rate increase is a response to the ECB’s assessment of the inflation outlook, considering economic and financial data, underlying inflation dynamics, and the effectiveness of monetary policy transmission.
ECB staff projections indicate an upward revision in inflation for 2023 and 2024, primarily due to rising energy prices, with average inflation expected to be 5.6% in 2023. This upward revision is accompanied by a downward revision for 2025. The central bank acknowledges that underlying price pressures remain high, despite some easing indicators. Additionally, the ECB has slightly lowered its projections for inflation excluding energy and food.
The tightening of monetary policy has led to increased financing costs and is gradually dampening demand, which plays a crucial role in bringing inflation back to target. As a result, the ECB has also adjusted its economic growth projections, expecting a modest expansion of 0.7% in 2023.
The ECB believes that maintaining the current interest rate levels for an extended period will substantially contribute to a timely return of inflation to its target. Future decisions regarding interest rates will be made based on a data-dependent approach, considering incoming economic data, underlying inflation trends, and the strength of monetary policy transmission.
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Christine Lagarde, President of the ECB, and Luis de Guindos, Vice-President of the ECB, held a press conference to provide more detailed insights into the ECB’s monetary policy decisions and the economic outlook.
They reiterated the ECB’s commitment to ensuring inflation returns to the 2% medium-term target in a timely manner. The rate increase reflects their assessment of the inflation outlook, supported by ECB staff macroeconomic projections that indicate elevated inflation rates for 2023 and 2024, primarily due to higher energy prices.
The economic activity in the euro area is expected to remain subdued, partly due to lower demand for exports and tightening financing conditions. The labor market has shown resilience, but employment growth is slowing. Fiscal policies are seen as essential to boost productivity, reduce public debt, and support economic stability.
Inflation, though declining, remains elevated, with notable impacts on food and energy prices. The ECB is closely monitoring underlying inflation trends and longer-term inflation expectations, which currently stand around 2%.
The risk assessment highlights downside risks to economic growth, including potential effects of more forceful monetary policy measures and a weaker global economy. Upside risks to inflation include energy and food price pressures.
Financial conditions are being strongly affected by the ECB’s monetary tightening, leading to increased financing costs and weaker credit dynamics**.