Monetary policy decisions
12 September 2024
The Governing Council today decided to lower
the deposit facility rate – the rate through which it steers the
monetary policy stance – by 25 basis points. Based on the Governing
Council’s updated assessment of the inflation outlook, the dynamics of
underlying inflation and the strength of monetary policy transmission,
it is now appropriate to take another step in moderating the degree of
monetary policy restriction.
Recent inflation data have come
in broadly as expected, and the latest ECB staff projections confirm
the previous inflation outlook. Staff see headline inflation averaging
2. 5% in 2024, 2. 2% in 2025 and 1. 9% in 2026, as in the June
projections. Inflation is expected to rise again in the latter part of
this year, partly because previous sharp falls in energy prices will
drop out of the annual rates. Inflation should then decline towards
our target over the second half of next year. For core inflation, the
projections for 2024 and 2025 have been revised up slightly, as
services inflation has been higher than expected. At the same time,
staff continue to expect a rapid decline in core inflation, from 2. 9%
this year to 2. 3% in 2025 and 2. 0% in 2026.
Domestic
inflation remains high as wages are still rising at an elevated pace.
However, labour cost pressures are moderating, and profits are
partially buffering the impact of higher wages on inflation. Financing
conditions remain restrictive, and economic activity is still subdued,
reflecting weak private consumption and investment. Staff project that
the economy will grow by 0. 8% in 2024, rising to 1. 3% in 2025 and 1.
5% in 2026. This is a slight downward revision compared with the June
projections, mainly owing to a weaker contribution from domestic
demand over the next few quarters.
The Governing Council is
determined to ensure that inflation returns to its 2% medium-term
target in a timely manner. It will keep policy rates sufficiently
restrictive for as long as necessary to achieve this aim. The
Governing Council will continue to follow a data-dependent and
meeting-by-meeting approach to determining the appropriate level and
duration of restriction. In particular, its interest rate decisions
will be based on its assessment of the inflation outlook in light of
the incoming economic and financial data, the dynamics of underlying
inflation and the strength of monetary policy transmission. The
Governing Council is not pre-committing to a particular rate path.
As announced on 13 March 2024, some changes to the operational
framework for implementing monetary policy will take effect from 18
September. In particular, the spread between the interest rate on the
main refinancing operations and the deposit facility rate will be set
at 15 basis points. The spread between the rate on the marginal
lending facility and the rate on the main refinancing operations will
remain unchanged at 25 basis points. Key ECB interest rates
The
Governing Council decided to lower the deposit facility rate by 25
basis points. The deposit facility rate is the rate through which the
Governing Council steers the monetary policy stance. In addition, as
announced on 13 March 2024 following the operational framework review,
the spread between the interest rate on the main refinancing
operations and the deposit facility rate will be set at 15 basis
points. The spread between the rate on the marginal lending facility
and the rate on the main refinancing operations will remain unchanged
at 25 basis points. Accordingly, the deposit facility rate will be
decreased to 3. 50%. The interest rates on the main refinancing
operations and the marginal lending facility will be decreased to 3.
65% and 3. 90% respectively. The changes will take effect from 18
September 2024. Asset purchase programme (APP) and pandemic emergency
purchase programme (PEPP)
The APP portfolio is declining at a
measured and predictable pace, as the Eurosystem no longer reinvests
the principal payments from maturing securities.
The
Eurosystem no longer reinvests all of the principal payments from
maturing securities purchased under the PEPP, reducing the PEPP
portfolio by €7. 5 billion per month on average. The Governing Council
intends to discontinue reinvestments under the PEPP at the end of
2024.
The Governing Council will continue applying flexibility
in reinvesting redemptions coming due in the PEPP portfolio, with a
view to countering risks to the monetary policy transmission mechanism
related to the pandemic. Refinancing operations
As banks are
repaying the amounts borrowed under the targeted longer-term
refinancing operations, the Governing Council will regularly assess
how targeted lending operations and their ongoing repayment are
contributing to its monetary policy stance.
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The
Governing Council stands ready to adjust all of its instruments within
its mandate to ensure that inflation returns to its 2% target over the
medium term and to preserve the smooth functioning of monetary policy
transmission. Moreover, the Transmission Protection Instrument is
available to counter unwarranted, disorderly market dynamics that pose
a 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.
The
President of the ECB will comment on the considerations underlying
these decisions at a press conference starting at 14:45 CET today.