July 21, 2022
Today, in line with the Governing Council’s firm commitment to its price stability mandate, the Governing Council took key new steps to ensure that inflation returns to its 2% target in the medium term. The Governing Council decided to raise the three key ECB interest rates by 50 basis points and approved the Transmission Protection Instrument (TPI).
The Governing Council considered it appropriate to take a larger first step in its path of normalizing the political rate than it pointed out at its previous meeting. This decision is based on the Governing Council’s updated assessment of inflation risks and on the enhanced support provided by the ICC for the effective transmission of monetary policy. It will support the return of inflation to the Governing Council’s medium-term target by strengthening the anchoring of inflation expectations and ensuring that demand conditions are adjusted to meet the medium-term inflation target. .
Further normalization of interest rates will be desirable at future meetings of the Governing Council. Today’s anticipated burden of exiting negative interest rates allows the Governing Council to make a transition to a meeting-by-meeting approach to interest rate decisions. The future policy rate trajectory of the Governing Council will continue to depend on the data and will help achieve its 2% inflation target in the medium term. In the context of its political normalization, the Governing Council will evaluate the remuneration options for excess liquidity.
The Governing Council assessed that the establishment of the ICC is necessary to support the effective transmission of monetary policy. In particular, as the Governing Council continues to normalize monetary policy, the ICC will ensure that the direction of monetary policy is transmitted smoothly to all euro area countries. The uniqueness of the Governing Council’s monetary policy is a precondition for the ECB to fulfill its mandate of price stability.
The ICC will be an addition to the Governing Council’s toolkit and can be activated to counteract the disorderly and unjustified market dynamics that pose a serious threat to the transmission of monetary policy in the euro area. The scale of TPI purchases depends on the severity of the risks faced by the transmission of policies. Purchases are not restricted ex ante. By safeguarding the transmission mechanism, the ICC will allow the Governing Council to fulfill its price stability mandate more effectively.
In any case, the flexibility in reinvesting redemptions at maturity in the portfolio of the Pandemic Emergency Purchase Program (PEPP) remains the first line of defense to counteract the risks of the pandemic-related transmission mechanism.
The details of the ICC are described in an independent press release to be published at 15:45 CET.
Key ECB interest rates
The Governing Council decided to raise the three key ECB interest rates by 50 basis points. As a result, the interest rates on the main refinancing operations and the interest rates on the marginal lending line and the deposit line will increase to 0.50%, 0.75% and 0.00. % respectively, with effects from 27 July 2022.
Further normalization of interest rates will be desirable at future meetings of the Governing Council. Today’s anticipated burden of exiting negative interest rates allows the Governing Council to make a transition to a meeting-by-meeting approach to interest rate decisions. The future policy rate trajectory of the Governing Council will continue to depend on the data and will help achieve its 2% inflation target in the medium term.
Asset Purchase Program (APP) and Pandemic Emergency Purchase Program (PEPP)
The Governing Council intends to continue to reinvest, in full, the principal payments of the maturing securities acquired under the APP for an extended period of time after the date on which it begins to raise interest rates. ECB and, in any case, for as long as necessary. maintain broad liquidity conditions and an adequate monetary policy stance.
With regard to the PEPP, the Governing Council intends to reinvest principal payments from maturing securities acquired under the program, at least until the end of 2024. In any case, the future disappearance of the PEPP portfolio will be managed to avoid interference with the PEPP. proper position of monetary policy.
Maturity repayments in the PEPP portfolio are being reinvested flexibly, with the aim of offsetting the risks of the transmission mechanism related to the pandemic.
Refinancing operations
The Governing Council will continue to monitor the financing conditions of banks and will ensure that the maturity of the operations of the third series of longer-term refinancing operations (TLTRO III) does not impede the proper transmission of their monetary policy. The Governing Council will also periodically assess how targeted lending operations contribute to its monetary policy position.
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The Governing Council is ready to adjust all its instruments within its mandate to ensure that inflation stabilizes at its 2% target over the medium term. The new ICC of the Governing Council will ensure the smooth transmission of its monetary policy position throughout the euro area.
The President of the ECB will discuss the considerations underlying these decisions at a press conference starting today at 2.45pm CET.