Nothing done for the ECB which, as widely expected, left the interest rates unchangedafter the 25 point cut made last June, and is evaluating a possible cut in Septemberwhen the Fed should also start a process of correcting the cost of money.
The Board’s decisions
The Governing Council of the ECB decided today to maintain the three interest rates remain unchanged of reference of the ECB: the one on main refinancing operations it is confirmed at 4.25%, the one on the marginal lending facility, at 4.50% and the one on deposits at 3.75%.
With regard to quantitative measures, the Board confirmed that the QE (QE) is tapering at a measured and predictable pacesince the Eurosystem no longer reinvests the capital repaid on maturing securities. Pandemic Response Plan (PEPP)in parallel, is decreasing by an average of 7.5 billion euros per month and the Governing Council confirms that it intends to end reinvestments at the end of 2024.
Inflation decline expectations confirmed
“The new information confirms “essentially those of the Governing Council regarding the medium-term inflation outlook”, explains the ECB, indicating that “the inflationary impact of high wage growth has been absorbed by profits”.
“Monetary policy remains restrictive,” confirmed the Board, which says it is “determined to ensure timely return inflation to its 2% target in the medium term”. To achieve this objective, the ECB “will keep key interest rates at sufficiently restrictive levels for as long as necessary”.
And the data-dependent approach
“In order to determine the appropriate level and duration of the restriction,” the ECB statement underlines, “the Governing Council will continue to follow a data-driven approach on the basis of which decisions are defined from time to time at each meeting”.
“Decisions on interest rates – it is recalled – will be based on its assessment of the inflation outlookgiven the new economic and financial data, the dynamics of underlying inflation and the intensity of monetary policy transmission, without being tied to a particular path of rates”.
Lagarde: We are open to rate cuts in September
There President Christine Lagardein the press conference following the Board meeting, confirmed that the Board intends to “keep the three rates at restrictive levels”, believing that “inflation will remain above target also in 2025”.
“We are determined to bring inflation back to 2% as quickly as possible,” the President reiterated, adding that “rates will remain at restrictive levels in order to ensure a return to the 2% target” and that the Board’s decisions will be “dependent on incoming data”, following a “meeting-by-meeting approach”.
Lagarde also granted a “we are open” to the possibility of a new intervention in September.
