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July 18, 2024EUROPEAN CENTRAL BANK MONETARY POLICY The European Central Bank (ECB) announced today that it would keep the three key ECB interest rates unchanged. The interest rates on the main refinancing operations, the marginal lending facility and the deposit facility are at 4.25%, 4.50% and 3.75% respectively.
Inflation has continued to fluctuate below 3% in recent months. Inflation eased to 2.5% in June, down from 2.6% in May. Measures of underlying inflation have eased or remained the same, confirming the gradually diminishing price pressures. Growth in wages is catching up to past high inflation, combined with lower productivity, unit labour costs are expected to remain elevated in the near term. Forward looking indicators signal that wage growth will moderate over the course of next year. Inflation is expected to fluctuate around the current level in the short term and then decline towards the target in the second half of next year.
The economy grew slower in the second quarter than in the first of 2024. Service sector continues to lead the recovery, while dampened by weaker industrial production and goods exports. Muted growth is expected in 2024. The economy is expected to continue to recover as real income is pushed up by higher wages and consumption. With growing demand, exports are expected to rise over the coming quarters. Employment rose by 0.3% in the first quarter supported by growth in the labour force. Unemployment remained unchanged at 6.4% in May with job vacancies likely created in the second quarter in the services sector.
The asset purchase programme (APP) portfolio is declining at a measured and predictable pace, as the Eurosystem does not reinvest all principal payments from maturing securities. The Governing Council no longer reinvests all of the principal payments from maturing securities purchased under the pandemic emergency purchase programme (PEPP). It intends to reduce the PEPP portfolio by €7.5 billion per month on average. The Governing Council means to discontinue reinvestments under the PEPP at the end of 2024.
The Governing Council notes that future policy rate decisions will be based on its assessment of the inflation outlook (including the dynamics of underlying inflation), incoming economic and financial data, and the strength of monetary policy transmission.
The next scheduled monetary policy meeting will be on September 12, 2024.
Source: European Central Bank: Monetary Policy Decisions, Monetary Policy Statement (Press Conference)
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