A regular meeting of the Governing Council of the European Central Bank (ECB) was held on Thursday 19 July, at which it was decided to leave all three key interest rates unchanged.
The base rate remained at 4.5%, the deposit rate at 4% and the marginal lending rate at 4.75%.
Most measures of core inflation are declining, wage growth is gradually slowing and some of the increase in labour costs is being absorbed in corporate profits. Tight financial conditions and past interest rate increases continue to dampen demand, contributing to weaker consumer price inflation. The Governing Council is determined to see inflation return to its medium-term objective of 2%. The Governing Council considers that key interest rates are at a level that contributes significantly to the ongoing disinflation process," the ECB said.
The regulator will continue to follow an approach whereby decisions on the level of interest rates and the duration of the ongoing restrictive policy are based on incoming statistical data and taken from meeting to meeting, rather than committing in advance to a specific interest rate path. The portfolio of securities purchased by the ECB under the Asset Purchase Programme (APP) is shrinking at a moderate and predictable pace as the regulator no longer reinvests the proceeds of the securities that are redeemed.
The European regulator plans to continue reinvesting all proceeds from the redemption of securities purchased under the Pandemic Emergency Purchase Programme (PEPP) until the first half of 2024. From the second half of the year, the ECB intends to start reducing the portfolio of securities purchased under the PEPP by an average of EUR 7.5 billion per month. The management of the ECB stands ready to adjust all instruments within its mandate in order to ensure the return of inflation to the target of 2%.
Recall that the European Central Bank has been tightening monetary policy since July 2022 to combat accelerating inflation, which jumped above 10% in October 2022.
Until then, the deposit rate was negative (-0.5%), the base rate was 0% and the marginal lending rate was 0.25%.
The regulator raised interest rates consistently at ten consecutive meetings. By September 2023, the policy rate had risen to 4.5%, the marginal lending rate to 4.75% and the deposit rate to 4%. Since then, the ECB has kept rates at the same level.
According to Eurostat's preliminary estimates, inflation will continue to fall in 2024, from an annualised rate of 2.6% in February to 2.4% in March, slightly above the ECB's 2% target. The figure was 2.8 percent in January. Economists surveyed by Bloomberg earlier forecast euro zone inflation at 2.3 percent in 2024.