Summary

  • Decided to raise the three key ECB interest rates by 50 basis points; accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 2.50%, 2.75 % and 2.00% respectively, with effect from 21 December 2022. (change)
  • The increase is based on the substantial upward revision to the inflation outlook and expects to raise them further. In particular, the Governing Council judges that interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure timely return of inflation to the ECB’s 2% medium-term target. (Change)
  • Keeping interest rates at restrictive levels will over time reduce inflation by dampening demand and guard against the risk of a persistent upward shift in inflation expectations. (Change)
  • The Governing Council’s future policy rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach. (New)
  • The key ECB interest rates are the Governing Council’s primary tool for setting the monetary policy stance. (New)
  • From the beginning of March 2023 onwards, the asset purchase programme (APP) portfolio will decline at a measured and predictable pace, as the Eurosystem will not reinvest all of the principal payments from maturing securities. The decline will amount to €15 billion per month on average until the end of the second quarter of 2023 and its subsequent pace will be determined over time. (New)
  • The Governing Council will regularly reassess the pace of the APP portfolio reduction to ensure it remains consistent with the overall monetary policy strategy and stance, to preserve market functioning, and to maintain firm control over short-term money market conditions. By the end of 2023, the Governing Council will also review its operational framework for steering short-term interest rates, which will provide information regarding the endpoint of the balance sheet normalisation process. (New)
  • The euro area economy may contract in the current quarter and the next quarter, owing to the energy crisis, high uncertainty, weakening global economic activity and tighter financing conditions. According to the latest Eurosystem staff projections, a recession would be relatively short-lived and shallow. Growth is nonetheless expected to be subdued next year and has been revised down significantly compared with the previous projections. Beyond the near term, growth is projected to recover as the current headwinds fade. Overall, the Eurosystem staff projections now see the economy growing by 3.4% in 2022, 0.5% in 2023, 1.9% in 2024 and 1.8% in 2025.

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