The European Central Bank concluded its monetary policy meeting on the 23rd, deciding to keep the euro area's three key interest rates unchanged while continuing to assess the energy price shock triggered by the escalation of the Middle East situation and its potential ongoing impact on inflation.
According to a statement released by the ECB on the same day, the euro area's main refinancing rate, marginal lending facility rate, and deposit facility rate were maintained at their existing levels of 2.40%, 2.65%, and 2.25%, respectively.
The ECB stated that although the current outlook for energy prices remains highly volatile, it is still close to the baseline level projected by the institution in June of this year, and is significantly higher than before the Middle East conflict erupted. Due to persistently high global economic uncertainty, the full impact of the energy shock on inflation has not yet fully materialised. The Governing Council is closely monitoring the intensity, duration, and the indirect and second-round effects triggered by this shock to ensure that the euro area's medium-term inflation rate stabilises at the 2% target.
The statement emphasised that the ECB's Governing Council maintains a proactive stance in addressing the uncertainty brought about by the conflict but will not make any pre-commitments regarding the specific path of interest rates. Future interest rate decisions will continue to follow the principles of being "data-dependent" and assessed on a "meeting-by-meeting" basis, dynamically evaluating the inflation outlook and related risks by closely combining the latest economic and financial data, underlying inflation dynamics, and the strength of monetary policy transmission.
Regarding the balance sheet, the ECB confirmed that the portfolios of the Asset Purchase Programme (APP) and the Pandemic Emergency Purchase Programme (PEPP) are being reduced at a measured and predictable pace, and the Eurosystem is no longer reinvesting the principal of maturing securities.
The ECB reiterated that the Governing Council stands ready to adjust all of its policy instruments within its mandate and can activate the Transmission Protection Instrument (TPI) at any time. This is to counter unwarranted, disorderly market dynamics that threaten the effective transmission of monetary policy across all euro area countries, thereby ensuring the achievement of its price stability objective.
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