The European Central Bank (ECB) kept its three key interest rates unchanged as a larger and more prolonged energy shock increased risks of higher inflation and weaker growth. The deposit facility rate remains at 2.50%, the main refinancing operations rate at 2.65% and the marginal lending facility rate at 2.90%. Underlying inflation has remained broadly stable, and wages have shown no material response to the energy shock so far. However, the shock’s increasing scale and duration, together with its potential indirect effects and subsequent wage and price responses, are likely to raise inflation and reduce growth. Financing conditions have tightened since the previous meeting, which is likely to weigh on both inflation and growth. Future rate decisions will depend on incoming data, the inflation outlook and its risks, underlying inflation and monetary policy transmission, without commitment to a particular rate path. Policy remains directed toward stabilizing inflation at the 2% target over the medium term. The asset purchase programme and pandemic emergency purchase programme portfolios continue to decline as the Eurosystem no longer reinvests principal payments from maturing securities.
ECB holds deposit rate at 2.50% as energy shock raises inflation risks and weakens growth outlook
The European Central Bank (ECB) left its key interest rates unchanged, maintaining the deposit facility rate at 2.50%, the main refinancing operations rate at 2.65% and the marginal lending facility rate at 2.90%. A larger and more prolonged energy shock threatens higher inflation and weaker growth, although underlying inflation remains broadly stable and wages show no material response so far. Future rate decisions will remain dependent on incoming data, with no commitment to a particular rate path.