Wednesday, March 29, 2023

The ECB raises its interest rates by half a percentage point, up to 3.5%

The European Central Bank (ECB) decided this Thursday to raise its interest rates by half a percentage point, up to 3.5%, because inflation in the euro area is still very high.

After the meeting of the Governing Council, the ECB reported that it also increases the credit facility, which it lends to banks overnight, by 50 basis points, up to 3.75%, and the deposit facility, which it remunerates excess reserves for one day, up to 3%.

The ECB said in a statement that it foresees that “inflation is going to be too high for too long” and therefore decided to raise its interest rates, to ensure that it returns to 2% on time.

Headline inflation slowed to 8.5% in February, but core inflation rose to 5.6%.

“The high level of uncertainty reinforces the importance of the Governing Council making monetary policy decisions based on economic data,” the entity added in a statement.

The ECB also emphasizes that it “closely monitors the tensions in the markets and is prepared to respond as necessary to preserve price stability and financial stability in the euro area.”

“The euro area banking sector is resilient, with strong capital and liquidity positions. In any case, the ECB’s monetary policy toolbox is fully equipped to provide liquidity support to the euro area financial system if necessary and to preserve that monetary policy is transmitted smoothly,” according to the ECB statement. .

The portfolio size of the first debt purchase program decreases at a measured and predictable rate, because the ECB does not fully reinvest the principal of maturing securities.

The decline will be, on average, €15 billion per month until the end of June 2023 and its subsequent pace will be determined later.

With regard to debt purchases due to the pandemic, the ECB plans to reinvest the principal of the securities acquired under the program that mature until at least the end of 2024.


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