Governor’s statement following the ECB’s monetary policy meeting, with commentary on the current situation

The decisions at yesterday’s monetary policy meeting of the Governing Council revolved around the latest forecasts. The forecast is for economic activity in the euro area to gradually strengthen over the next two years after recording moderate growth this year. Inflation will gradually fall, and will approach the target rate of 2% by the end of the projection horizon. Core inflation will also remain elevated.

The Governing Council opted for further action, in light of the high core inflation, the latest forecasts, and the strength of monetary policy transmission. It thus raised key interest rates for the eighth consecutive monetary policy meeting, this time again by 25 basis points. At the same time we confirmed the decision announced at the previous meeting that reinvestment of maturing principal under the APP will be discontinued as of July of this year.

Yesterday the Governing Council of the ECB discussed the latest economic projections for the euro area. GDP growth is forecast at 0.9% this year, before strengthening to 1.5% in 2024 and 1.6% in 2025 amid the positive effects of falling inflation, an improving situation in global trade, and the gradual strengthening of real household income. Inflation will fall over the projection horizon, with core inflation remaining the main driver following this year’s sharp slowdown in energy and food price inflation. Inflation will average 5.4% this year, and will fall further to 3.0% in 2024 and 2.2% in 2025, partly as a result of the growing deflationary effects of tighter monetary policy.

The financial markets are subdued, and volatility is therefore low. In light of this, credit premiums and borrowing costs on the capital market remain relatively stable. Yields on euro area government bonds have risen slightly since the May meeting.

While inflation remains high, and having regard for the latest economic forecasts for the euro area, the Governing Council yesterday opted for further action, again raising the key interest rate by 25 basis points. We also confirmed our decision announced in May to discontinue the reinvestment of maturing principal under the APP as of the beginning of July.

The future decisions will also ensure that interest rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to our target of 2%. As before, any further steps will depend on the situation at the time, in particular on the economic and financial data, developments in core inflation, and the effectiveness of our measures.