Full ECB statement: Interest rate cut by 25 basis points, wording has not been significantly adjusted

On October 17, the ECB announced its latest interest rate decision. The three key interest rates were lowered by 25 basis points, the deposit mechanism interest rate was lowered from 3.5% to 3.25%, and the main refinancing interest rate and marginal loan interest rate were lowered from 3.65% and 3.9% to 3.4% and 3.65%, respectively. This is the first time in 13 years that the ECB has cut interest rates continuously.

Full policy statement

The ECB Governing Council today decided to cut the three key interest rates by 25 basis points. The decision to lower the deposit facility interest rate — through which the Management Committee guides the monetary policy stance — is based in particular on our latest assessment of inflation prospects, potential inflation dynamics, and the strength of monetary policy transmission. The latest information on inflation indicates that the process of falling back in inflation is progressing smoothly. The recent downturn in indicators of economic activity has also affected the outlook for inflation. Meanwhile, financing conditions remain tight.

Inflation is expected to rise in the next few months and then gradually fall to the target level within the next year. Domestic inflation is still high because wages are still growing rapidly. Meanwhile, labor cost pressure is expected to gradually ease, and profit margins will partially cushion its impact on inflation.

The Management Committee is determined to ensure that inflation returns to the medium term target of 2% in a timely manner. To achieve this goal, policy interest rates will remain tight enough for as long as necessary. The Management Committee will continue to determine the appropriate level and duration of restrictive policies at each meeting based on how the data is relied upon. In particular, interest rate decisions will be based on an assessment of inflation prospects, including economic and financial data, potential inflation dynamics, and the strength of monetary policy transmission. The Management Committee does not promise a specific interest rate path in advance.

Key interest rates

The Management Committee decided today to cut the three key interest rates by 25 basis points. Specifically, the deposit facility interest rate, the main refinancing operation interest rate, and the marginal loan facility interest rate will be lowered to 3.25%, 3.40%, and 3.65%, respectively. The decision will take effect on October 23, 2024.

Asset Purchase Program (APP) and Emergency Anti-epidemic Debt Purchase Program (PEPP)

App portfolios are shrinking at a controlled and predictable rate as the Eurosystem no longer reinvests principal in maturing securities.

For PEPP portfolios, the Eurosystem no longer fully reinvests the principal amount of maturing securities, reducing by an average of 7.5 billion euros per month. The Management Committee plans to stop reinvesting in PEPP by the end of 2024.

The Management Committee will continue to maintain flexibility in the process of reinvesting maturing PEPP portfolio bonds to address the risks of monetary policy transmission associated with the pandemic.

Refinancing operations

As banks gradually repay loans from targeted long-term refinancing operations, the management committee will regularly evaluate the contribution of targeted loan operations and continued repayment to monetary policy positions.

The Management Committee is ready to adjust all instruments within its mandate to ensure that inflation returns to the 2% target in the medium term and maintain the smooth transmission of monetary policy. Furthermore, transmission protection tools can also be used to deal with unprovoked, disorderly developments that seriously threaten the transmission of monetary policy throughout the Eurozone, thus enabling the Management Committee to more effectively carry out its mission of price stability.