September 14, 2023
Effective September 14, 2023, the Governing Council made the decision to raise the three key interest rates set by the European Central Bank (ECB) by 25 basis points. Therefore, effective September 20, 2023, the interest rates on the main refinancing operations, the marginal lending facility, and the deposit facility will all be raised to 4.50%, 4.75%, and 4.00%, respectively.
The increase in the rate follows the updated assessment of the inflation outlook respective of new economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission by the Governing Council. The September macroeconomic projections show headline inflation in the euro area averaging 5.6% in 2023, 3.2% in 2024 and 2.1% in 2025. This reflects an upward revision In 2023 and 2024 due to increased energy prices, while 2025 sees a downward revision. Overall, inflation remains high, despite some easing in indicators. Excluding energy and food, inflation projected path has been slightly revised down to 5.1% in 2023, 2.9% in 2024, and 2.2% in 2025.
The ECB highlighted, “The Governing Council’s past interest rate increases continue to be transmitted forcefully. Financing conditions have tightened further and are increasingly dampening demand, which is an important factor in bringing inflation back to target. With the increasing impact of this tightening on domestic demand and the weakening international trade environment, ECB staff have lowered their economic growth projections significantly. They now expect the euro area economy to expand by 0.7% in 2023, 1.0% in 2024 and 1.5% in 2025.”
In tackling underlying inflation which remains high, The Governing Council is resolute in their data-based approach and will continue to adjust its monetary policy in accordance with new economic and financial data. As such, the Governing Council stands ready to adjust interest rates for however long is necessary at sufficiently restrictive levels to ensure that inflation returns to its 2% target over the medium term and to preserve the smooth functioning of monetary policy transmission.
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