The European Central Bank kept its three key interest rates unchanged on Thursday as it warned that rising energy prices were increasing risks to inflation while also weighing on economic growth.
The deposit facility rate — the interest banks receive for parking money overnight at the ECB — will stay at 2.50%, while the main refinancing operations rate will remain at 2.65% and the marginal lending facility rate at 2.90%, the bank announced in a statement on Thursday.
Energy prices have continued to rise, creating upside risks to the inflation outlook and downside risks to the growth outlook, it said. Underlying inflation has so far remained broadly stable and wages do not show a “material response” at this stage.
Financing conditions have tightened since the Governing Council’s last meeting, and this is likely to weigh on both inflation and growth.
The central bank repeated that it is committed to setting monetary policy so that inflation stabilises at its 2% target over the medium term.
Bond holdings continue to shrink
The ECB said its holdings under the Asset Purchase Programme and the Pandemic Emergency Purchase Programme are declining at a “measured and predictable pace” because the Eurosystem is no longer reinvesting principal payments from maturing securities.
Policy decisions will continue to be taken meeting by meeting and will depend on incoming economic and financial data, as well as underlying inflation and how strongly interest-rate changes feed through into the economy, the ECB said.
It added that it is not pre-committing to a particular path for interest rates.
The Governing Council declared that it remains ready to adjust all its instruments within its mandate to ensure inflation stabilises at 2% and to preserve the “smooth functioning” of monetary policy transmission.
It also reiterated that the Transmission Protection Instrument remains available to counter “unwarranted, disorderly market dynamics” that threaten the transmission of policy across euro area countries.
