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Thomas StorringDirector – Economics and Statistics
Tel: 902-424-2410Email:

December 15, 2022

The European Central Bank (ECB) raised the three key ECB interest rates by 50 basis points. The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 2.50%, 2.75% and 2.0% respectively, with effect from 21 December 2022. 

Based on the updated assessment of inflation risks, the Governing Council expects to raise interest rates further to dampen demand and inflation expectations. ECB interest rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach.

The Governing Council intends to continue reinvesting principal payments from maturing securities purchased under the Asset Purchase Program (APP) until the end of February 2023. From the beginning of March 2023 onwards, the asset purchase programme (APP) portfolio will decline at a measured and predictable pace, as the Eurosystem will not reinvest all of the principal payments from maturing securities. The decline will amount to €15 billion per month on average until the end of the second quarter of 2023 and its subsequent pace will be determined over time. The detailed parameters for reducing APP holdings will be announced at the February meeting.

The Governing Council intends to reinvest the principal payments from maturing securities purchased under the pandemic emergency purchase programme (PEPP) until at least the end of 2024. As banks are repaying the amounts borrowed under the targeted longer-term refinancing operations, the Governing Council will regularly assess how targeted lending operations are contributing to its monetary policy stance.

Euro area economic activity slowed to 0.3% in the third quarter of 2022. High inflation and tighter monetary conditions are slowing spending and production by lowering real household income and increasing production costs for firms. The past deterioration in the terms of trade, reflecting the faster rise in import prices than in export prices, continues to weigh on purchasing power in the euro area.

Employment increased 0.3% in the third quarter while unemployment rate declined to a new historical low of 6.5% in October 2022. Increased wages reflecting the strength in the labour market are expected to offset some lost purchasing power and support household consumption. 

Inflation in the Euro Area declined to 10.0% in November, mainly reflecting lower energy price inflation. Fiscal measures to compensate households for high energy prices are expected to lower inflation over next year but will increase once they are withdrawn. Supply bottlenecks are gradually easing, although their effects are still contributing to inflation, pushing up goods prices in particular. According to the latest Eurosystem staff projections, inflation is expected to reach 8.4% in 2022 and 6.3% in 2023. Inflation is then projected to average 3.4% in 2024 and 2.3% in 2025.

Reflecting the impacts of high uncertainty, weaker global activity and tighter financial conditions, the euro area economic growth is expected to be subdued over the next year. Overall, real GDP is expected to grow 3.4% in 2022, 0.5% in 2023, 1.9% in 2024 and 1.8% in 2025. These projections have been revised down from the previous projections. 

The next scheduled monetary policy meeting will be on February 2, 2023. 


Source: European Central Bank: Monetary Policy DecisionsMonetary Policy Statement (Press Conference)

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