ECB rates continue to rise  Photo: Shutterstock

ECB rates continue to rise  Photo: Shutterstock

More important than raising its key interest rates by 50 basis points is the ECB’s message today: rates will remain restrictive for as long as it takes.

In line with what analysts have been saying, the ECB’s Governing Council has decided to raise all three key interest rates by 50 basis points. As of 8 February, the interest rates on the main refinancing operations, the marginal lending facility and the deposit facility will be raised to 3.00%, 3.25% and 2.50% respectively.

“The Governing Council will stay the course in raising interest rates significantly at a steady pace and in keeping them at levels that are sufficiently restrictive to ensure a timely return of inflation to its 2% medium-term target,” the ECB said . Putting its money where its mouth is, it announced a further 50 basis points increase in its key rates in March. Afterwards, it will then assess the future path of its monetary policy.

This is a strong restrictive decision, one that the Frankfurt institution justifies by “maintaining underlying inflationary pressures”.

In the long run, the ECB explains, “keeping interest rates at restrictive levels will over time reduce inflation by dampening demand and will also guard against the risk of a persistent upward shift in inflation expectations.” In any case, future Governing Council decisions on policy rates will remain data-dependent and will continue to be taken on a meeting-by-meeting basis.

Balance sheet reduction becomes clearer

The ECB has also released the details of the reduction of the securities held by the Eurosystem under the asset purchase programme (APP). As indicated in December, this portfolio will be reduced by an average of €15bn per month, starting in early March and ending in June 2023. After that date, “the pace of these reductions will be adjusted over time”.

With regard to the pandemic emergency purchase programme (PEPP), the Governing Council intends to reinvest principal repayments on maturing securities acquired under the programme at least until the end of 2024. “In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance.”

This story was first published in French on Paperjam. It has been translated and edited for Delano.