© Stocksak. A view of the European Central Bank (ECB), building in Frankfurt, Germany, October 27, 2022. REUTERS/Wolfgang Rattay/File Photo
FRANKFURT – Oct 27 (Stocksak). Following its policy meeting, the European Central Bank issued the following statement.
Today, the Governing Council decided to increase the three key ECB interest rate by 75 basis points.
The Governing Council has made significant progress in removing monetary policy accommodation with this third major rate increase in a row.
The Governing Council took today’s decision, and expects to raise interest rates further, to ensure the timely return of inflation to its 2% medium-term inflation target.
Following its meeting-by-meeting approach, the Governing Council will base future policy rate paths on the evolving outlook of inflation and the economy.
The inflation rate is still too high and will continue to rise for a prolonged time.
In September, euro area inflation reached 9.9%.
Inflation has increased due to rising food and energy prices, supply bottlenecks, and post-pandemic recovery.
The Governing Council’s monetary policy is aimed at reducing support for demand and guarding against the risk of a persistent upward shift in inflation expectations.
The Governing Board also approved the modification of the terms and conditions for the third series of targeted, longer-term refinancing operations (TLTRO III).
This instrument played a crucial role in countering price instability risks during the acute phase.
Amid the unexpected and extraordinary rise of inflation, it is necessary to recalibrate it to make sure it is in line the broader process of monetary policy normalisation and to increase the transmission rate of policy rate increases into bank lending conditions.
Therefore, the Governing Board decided to adjust the interest rates applicable for TLTRO III beginning 23 November 2022. Banks were also offered additional voluntary early repayment dates.
Finally, in order to align the remuneration of minimum reserves held by credit institutions with the Eurosystem more closely with money market conditions, the Governing Council decided to set the remuneration of minimum reserves at the ECB’s deposit facility rate.
The details of the changes made to the TLTRO III terms & conditions are described in a separate press statement, due to be published at 15.45 CET.
A technical press release detailing the changes to the remuneration for minimum reserves will also be published at 15.45 CET.
Key ECB Interest Rates The Governing council decided to increase the three key ECB rates by 75 basis points.
With effect from 2/11/2022, the interest rates for the main refinancing operations, the marginal lending facility, and the deposit facility will be raised to 2.00%, 1.50%, and 2.25%, respectively.
The Asset Purchase Programme (APP) and Pandemic Emergency Purchase Programme (PEPP). The Governing Council plans to continue reinvesting in full the principal payments from maturing securities under the APP for a longer period of time than the date it began raising the key ECB rates. In any case, the Governing Council will continue to do so for as long as it is necessary to maintain adequate liquidity conditions and a monetary policy stance.
Concerning the PEPP, The Governing Council plans to reinvest principal payments from maturing securities until at least 2024.
The future roll-offs of the PEPP portfolio will in any case be managed so as to not interfere with the appropriate monetary policy position.
The Governing council will continue to be flexible in reinvesting redemptions due in the PEPP portfolio in order to counter risks to the monetary transmission mechanism associated with the pandemic.
Refinance operations The Governing council decided to adjust the interest rates applicable for TLTRO III.
Between 23 November 2022 and the maturity date or early payment date of each TLTRO III operation, TLTRO III’s interest rate will be indexed at the average key ECB interest rate for this period.
The Governing council also decided to offer banks additional early repayment dates.
The Governing Council will assess in any case how targeted lending operations contribute to its monetary policy stance.
*** The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation stabilises at its 2% target over the medium term.
The Transmission Protection Instrument is available for countering unwarranted and disorderly market dynamics that pose a serious risk to the transmission monetary policy across all countries of the euro area. This allows the Governing Council better fulfill its price stability mandate.
Today’s press conference will begin at 14:45 CET. The President of ECB will speak out about the factors that influenced these decisions.
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