ECB : Holds Interest Rates Steady, Foresees Gradual Inflation Decline, and Advances Balance Sheet Normalization for Economic Recovery"
The ECB has opted to maintain the current levels of its three key interest rates. Forecasts indicate a gradual decline in inflation over the next year, with a projected return to the 2% target by 2025.
While underlying inflation has eased, elevated domestic price pressures persist due to robust growth in unit labor costs.
Near-term economic growth is anticipated to be subdued, but a recovery is expected in the future.
The ECB remains committed to achieving the inflation target and will continue to adopt a data-dependent approach to monetary policy.
Regarding the balance sheet, the ECB has accelerated normalization and will reinvest principal payments from maturing securities until the first half of 2024.
Starting from the second half of 2024, there will be an average monthly reduction of 7.5 billion euros in the PEPP portfolio, with reinvestment discontinued by the end of 2024.
Market interest rates have decreased, while lending rates have risen.
Financial stability faces challenges due to tightening financing conditions, sluggish growth, and geopolitical tensions.
Notably, there was no discussion of rate cuts during the ECB meeting.
The ECB remains reliant on data and will evaluate the inflation outlook, underlying inflation, and the transmission of monetary policy to inform future decisions.
Special attention will be given to wage and profit data to understand domestic inflation resistance.
The decision to accelerate balance sheet normalization is distinct from interest rate decisions.
The ECB underscores the importance of rolling back fiscal measures and implementing structural reforms to enhance the supply capacity of the euro area.
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