Monetary policy decisions

The Governing Council of the ECB decided today to raise key interest rates by 25 basis points in order to reinforce progress towards its medium-term inflation target of 2% in a timely manner. The Council is determined to ensure that inflation returns to its target and although it is still expected to remain high for too long, the decline in inflation continues.

In 2025, the economy of the euro area is expected to expand by 1.5%, while in 2024 it is expected to expand by 1.0%. In 2023, the expansion is projected to be 0.7%. The increasing impact of tightening domestic demand and weakening international trade environment has led to the dampening of demand, which is an important factor in bringing back inflation to the target. Financing conditions have been further tightened, and these increases in interest rates are expected to be forcefully transmitted in the future, based on the past decisions of the Governing Council. The staff of the ECB has slightly revised down the projected path of inflation, excluding food and energy, to an average of 2.2% in 2025, 2.9% in 2024, and 5.1% in 2023. However, underlying pressures on prices remain high, even though the indicators of the ECB staff show a slight upward revision for energy prices in 2024 and 2023. This is a downward revision for 2025 and an upward revision for 2024 and 2023. The macroeconomic projections for the euro area in September, as presented by the staff of the ECB, show an average inflation of 2.1% in 2025, 3.2% in 2024, and 5.6% in 2023. The assessment of the Governing Council’s outlook on inflation reflects the strength of monetary policy transmission and the underlying dynamics of inflation, taking into account the incoming financial and economic data. Today’s increase in the interest rate reflects this assessment.

The Governing Council will base its assessment of the inflation outlook on the underlying dynamics of inflation, as well as the incoming financial and economic data. The Council will follow a data-dependent approach to determine the appropriate duration and level of restrictions. The future decisions of the Governing Council will ensure that key interest rates set by the ECB are sufficiently restrictive, as long as it is necessary. The Governing Council considers the key interest rates of the ECB to be at levels that will contribute substantially to a timely return to the inflation target. This assessment is based on the current data.

Main ECB interest rates

Starting on 20 September 2023, the interest rates on the marginal lending facility and the deposit facility will be raised to 4.75% and 4.00% respectively. The interest rate on the main refinancing operations will also be increased to 4.50%. The Governing Council has made the decision to raise the three primary ECB interest rates by 25 basis points.

Program for purchasing assets (APP) and program for purchasing assets during emergencies (PEPP)

The Eurosystem does not reinvest the principal payments from maturing securities, resulting in a gradual and predictable decline of the APP portfolio.

The Council Governing intends to reinvest principal payments from maturing securities under the PEPP programme until at least the end of 2024. In order to avoid interfering with the appropriate monetary policy stance, the future roll-off of the PEPP portfolio will be managed in case of any concerns.

The Governing Council will continue to apply reinvesting flexibility in the PEPP portfolio, with a view to countering the risks related to the transmission mechanism, pandemic policy, and monetary policy, as well as the coming redemptions.

Operations involving the refinancing of loans

The Governing Council will regularly evaluate how the ongoing repayment and lending operations contribute to its monetary policy and targeted lending operations.

The Governing Council is ready to adjust all its instruments within its mandate to ensure medium-term inflation returns to its target of 2%, thus allowing the Instrument for Protection of Transmission to effectively deliver price stability and counter the serious threat of market dynamics that pose unwarranted disorderly transmission to the monetary policy across all euro area countries.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:45 CET today.