December 21, 2022
Effective December 15, 2022, the Governing Council took the decision to raise the three key interest rates set by the European Central Bank (ECB) by 50 basis points. As a result, starting on December 21, 2022, the interest rates on the main refinancing operations, the marginal lending facility, and the deposit facility will all be raised to 2.50%, 2.75%, and 2.00%, respectively.
The Governing Council expects to raise interest rates further as inflation remains significantly high and is anticipated to stay above the target for too long. Keeping interest rates at restrictive levels will over time reduce inflation and ensure it reaches its medium-term target of 2% in a timely manner. The monetary policy of the Governing Council aims to reduce demand and protect against the possibility of a persistent increase in inflation expectations.
In November, inflation in the euro zone reached 10.0% slightly lower than the 10.6% recorded in October. This decline was as a result of lower energy price inflation. According to the ECB, “Food price inflation and underlying price pressures across the economy have strengthened and will persist for some time.” It was also noted that, “The euro area economy may contract in the current quarter and the next quarter, owing to the energy crisis, high uncertainty, weakening global economic activity and tighter financing conditions.”
Additionally, the Governing Council considered concepts for normalising the Eurosystem’s monetary policy securities holdings. From the beginning of March 2023 onwards, the asset purchase programme (APP) portfolio will decline at a measured and predictable pace, as the Eurosystem will not reinvest all the principal payments from maturing securities. The ECB added that, “The Governing Council will regularly reassess the pace of the APP portfolio reduction to ensure it remains consistent with the overall monetary policy strategy and stance, to preserve market functioning, and to maintain firm control over short-term money market conditions.”
Disclaimer:
Analyst Certification – The views expressed in this research report accurately reflect the personal views of Mayberry Investments Limited Research Department about those issuer(s) or securities as at the date of this report. Each research analyst (s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation(s) or view(s) expressed by that research analyst in this research report.
Company Disclosure – The information contained herein has been obtained from sources believed to be reliable, however its accuracy and completeness cannot be guaranteed. You are hereby notified that any disclosure, copying, distribution or taking any action in reliance on the contents of this information is strictly prohibited and may be unlawful. Mayberry may effect transactions or have positions in securities mentioned herein. In addition, employees of Mayberry may have positions and effect transactions in the securities mentioned herein.
