The European Central Bank (ECB) lifted its main refinancing rate by 25
basis points to 3.75 percent on Thursday, as widely expected. The ECB’s interest rates on the marginal lending facility and the deposit
facility were also increased by 25 basis points each to 4.00 percent and 3.25
percent, respectively.
In its policy statement, the ECB noted:
- 25-basis-point rate hike was approved in light of ongoing high
inflation pressures;
- Incoming information broadly supports the assessment of the
medium-term inflation outlook that Governing Council formed at its previous
meeting;
- Past rate increases are being transmitted forcefully to euro area
financing and monetary conditions, while lags and strength of transmission to
the real economy remain uncertain;
- ECB’s future decisions will ensure that its rates will be brought to
levels sufficiently restrictive to achieve a timely return of inflation to the
2% medium-term target and will be kept at those levels for as long as necessary;
- Governing Council will continue to follow a data-dependent approach to
determining the appropriate level and duration of restriction;
- Governing Council’s rate decisions will continue to be based on its
assessment of inflation outlook in light of the incoming economic and financial
data, dynamics of underlying inflation, and strength of monetary policy
transmission;
- Governing Council will keep reducing its asset purchase program (APP)
portfolio at a measured and predictable pace;
- Governing Council expects to discontinue the reinvestments under APP as of July 2023;
- Governing Council stands ready to adjust all of its instruments to
ensure that inflation returns to its 2% target over the medium term and to
preserve smooth functioning of monetary policy transmission;
- ECB’s policy toolkit is fully equipped to provide liquidity support to
the euro area financial system if needed;
- Transmission Protection Instrument is available to counter
unwarranted, disorderly market dynamics that pose 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