- Prior decision
- Main refinancing rate 2.50% vs 2.50% expected
- Prior 2.00%
- Deposit facility rate 2.00% vs 2.00% expected
- Prior 1.50%
- Marginal lending facility 2.75%
- Prior 2.25%
- Interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure timely return of 2% inflation target
- Expects to raise rates significantly further, because inflation remains far too high and is projected to stay above the target for too long
- APP portfolio will decline at a measured pace from March 2023 onwards
- The decline will be €15 billion per month on average until the end of Q3, then subsequent pace will be re-determined
- Euro area economy may contract in the current quarter and next quarter
- Growth to be subdued next year, revised down significantly compared with previous projections
- Sees euro area economy growing by 3.4% in 2022, 0.5% in 2023, 1.9% in 2024 and 1.8% in 2025
- Sees euro area inflation at 8.4% in 2022, 6.3% in 2023, 3.4% in 2024 and 2.3% in 2025
- Full statement
At first glance, this is more of a hawkish tilt by the ECB as they reword their forward guidance to say that "interest rates will still have to rise significantly at a steady pace". They do that while reaffirming that future policy decisions will continue to be data-dependent. As such, you have to wonder whether there was a split and by how much to today's decision, between a 50 bps move and a 75 bps one.
Besides that, everything is as per what you'd expect from the ECB as they go hard on the language after having revised higher their inflation forecasts for next year. That is pretty much saying that they are determined to fight the inflation battle regardless of the slowdown in the economy.
EUR/USD has moved up from 1.0620 to 1.0645 in the immediate reaction and it's now over to Lagarde to try and hammer home the above points. Personally though, I'd still think that the window to tighten further is closing in on the ECB despite the hawkish rhetoric put out today.