The European Central Bank (ECB) decided to leave key interest rates unchanged after deciding on the first rate cut since 2019 at its June meeting. The pause came as no surprise to the market, which had already expected no major changes to interest rates.
Thus, the deposit rate remains at 3.75%, the rate applicable to main refinancing operations remains at 4.25%, and the liquidity provision rate remains at 4.5%.
In a statement announcing the decision, the ECB recalled that “andWhile some core inflation indicators rose slightly in May due to one-off factors, most indicators remained stable or fell slightly in June.” gains,” the monetary authority added.
Despite this, the central bank warns that “domestic price pressures remain elevated and services price inflation is high,” and therefore “global inflation is likely to remain above target for much of next year.”
As for the future of interest rates, as analysts had already expected, the institution led by Christine Lagarde declined to set a path for key rates in the near future, saying only that “it will keep key interest rates sufficiently restrictive for as long as necessary.”
The Governing Council also reiterates what it has already said: “it will continue to follow a data-driven approach at each meeting in determining the appropriate level and duration of restrictions.”
These data include “an assessment of the inflation outlook in the light of newly available economic and financial data, the dynamics of core inflation and the credibility of the monetary policy transmission.” “The Governing Council does not make any ex ante commitment to a specific path for interest rates,” the institution concludes.
As stated in the statement on the occasion of the June meeting, the ECB reiterates that “the APP portfolio is being reduced at a measured and predictable pace, given that the Eurosystem has not been able to reinvest the principal repayments on maturing bonds.”
In addition, all capital repayments on maturing bonds purchased under the PEPP, the liquidity injection program created in the wake of the pandemic, are currently no longer reinvested, reducing the central bank’s portfolio by an average of “€7.5 billion per month.” The ECB will stop reinvesting under the PEPP by the end of 2024.
At the same time, the institution ensures that it “will continue to exercise flexibility in reinvesting the reimbursements provided under the PEPP portfolio to counter the risks to the monetary policy transmission mechanism related to the pandemic.”
Regarding the Targeted Long-Term Refinancing Operations (TLTRO) programme, which allowed banks to request funding from the ECB for part of the loans extended to families and companies, the central bank explains that the bloc’s financial institutions continue to reimburse these amounts to the monetary authority.
To ensure that these payments contribute to the guidance of monetary policy, the ECB therefore says it continues to assess these operations “regularly”.
Author: Business magazine
Source: CM Jornal
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