The European Central Bank has issued the following press release:
The European Central Bank (ECB) has announced a 25 basis point increase in its three key interest rates, bringing the rates on the main refinancing operations, marginal lending facility, and deposit facility to 3.75%, 4.00%, and 3.25%, respectively. The rate hike, effective from 10 May 2023, is in response to persistent high inflation pressures, despite a decline in headline inflation over recent months. The ECB Governing Council will use interest rates as the primary tool for setting monetary policy stance and will continue to follow a data-dependent approach to achieve a timely return of inflation to the 2% medium-term target.
In addition to the interest rate hike, the Governing Council has decided to reduce the Eurosystem's asset purchase programme (APP) portfolio at a measured pace, with average monthly declines of €15 billion until the end of June 2023. The reinvestments under the APP are expected to be discontinued from July 2023. The Governing Council intends to reinvest principal payments from maturing securities purchased under the pandemic emergency purchase programme (PEPP) until at least the end of 2024, managing the future roll-off of the PEPP portfolio to avoid interference with the appropriate monetary policy stance.
As banks repay amounts borrowed under targeted longer-term refinancing operations, the Governing Council will assess how targeted lending operations contribute to its monetary policy stance. The ECB maintains readiness to adjust its instruments within its mandate to ensure inflation returns to the 2% target and to preserve smooth monetary policy transmission. The central bank's policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed, and the Transmission Protection Instrument is available to counter unwarranted, disorderly market dynamics that threaten the transmission of monetary policy across all euro area countries.