The European Central Bank (ECB) announced on Thursday that it has left key interest rates unchanged following its July policy meeting, in line with market expectations. The interest rate on the main refinancing operations, the marginal lending facility, and the deposit facility remain at 4.25%, 4.5%, and 3.75%, respectively.
Key Takeaways from ECB Policy Statement:
The ECB will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction.
Policy rates will be kept sufficiently restrictive for as long as necessary to achieve the ECB's aims.
Interest rate decisions will be based on the assessment of the inflation outlook, incoming economic and financial data, underlying inflation dynamics, and the strength of monetary policy transmission.
The Asset Purchase Programme (APP) and Pandemic Emergency Purchase Programme (PEPP) APP portfolio will decline at a measured and predictable pace, with no reinvestments of principal payments from maturing securities.
The PEPP portfolio will be reduced by €7.5 billion per month on average, and reinvestments under the PEPP will be discontinued at the end of 2024.
The ECB will continue to apply flexibility in reinvesting redemptions due in the PEPP portfolio to counter risks to the monetary policy transmission mechanism related to the pandemic.
Market Reaction: The Euro showed no immediate reaction to the ECB's monetary policy announcements. At the time of the press, EUR/USD was little changed on the day at 1.0935.
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