February 2, 2023

The Governing Council will continue to gradually raise interest rates to levels that are sufficiently high to guarantee that inflation reaches its medium-term target of 2% in a timely manner. In light of this, the Governing Council agreed to raise the three major ECB interest rates by 50 basis points today and anticipates doing so again soon. At its next monetary policy meeting in March, the Governing Council plans to raise interest rates by an additional 50 basis points in light of the underlying inflation pressures. After that, it will assess the future course of its monetary policy. By slowing demand and preventing a lasting upward change in inflation expectations, keeping interest rates at low levels will eventually cut inflation. In any case, the Governing Council will continue to base its future policy rate decisions on data and proceed meeting by meeting.

The Governing Council made a decision today about the procedures for decreasing the amount of securities held by the Eurosystem under the asset purchase program (APP). The APP portfolio will decrease by an average of €15 billion each month from the beginning of March through the end of June 2023, as was announced in December. The rate at which the portfolio will decrease after that will be decided over time.

Key ECB interest rates

 The three main ECB interest rates will increase by 50 basis points as per the Governing Council’s decision. As a result, starting on February 8, 2023, the interest rates on the primary refinancing operations, the marginal lending facility, and the deposit facility will all be raised to 3.00%, 3.25%, and 2.50%, respectively.

Asset purchase programme (APP) and pandemic emergency purchase programme (PEPP)

 Up until the end of February 2023, the Governing Council plans to keep reinvesting all principal payments from maturing assets bought under the APP. Since the Eurosystem won’t reinvest all of the principal payments from aging securities, the APP portfolio will thereafter depreciate at a defined and predictable rate. Up until the end of June 2023, the drop will cost an average of €15 billion every month, and its rate after that will be decided over time.

The Governing Council expects to reinvest principal payments from maturing securities purchased under the PEPP until at least the end of 2024. In any case, the roll-off of the PEPP portfolio in the future will be controlled to prevent meddling with the appropriate posture of monetary policy.

With a view to reducing risks to the transmission mechanism of monetary policy associated with the pandemic, the Governing Council will continue to exercise flexibility in reinvesting redemptions that are due in the PEPP portfolio. 

Refinancing operations

 The Governing Council will periodically evaluate how targeted lending operations are influencing its monetary policy stance as banks repay the sums borrowed under the targeted longer-term refinancing operations.

In order to ensure that inflation reaches its 2% target over the medium term, the Governing Council is prepared to adapt every tool at its disposal within the bounds of its mandate. The Transmission Protection Instrument is available to counter unwarranted, disorderly market dynamics that seriously jeopardize the transmission of monetary policy across all member states of the euro area, enabling the Governing Council to more successfully carry out its mandate for price stability.

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.