December 14, 2023
On December 14, 2023, the Governing Council made the decision to keep the three key interest rates set by the European Central Bank (ECB) unchanged. Therefore, the interest rates on the main refinancing operations, the marginal lending facility, and the deposit facility will all remain unchanged at 4.50%, 4.75%, and 4.00%, respectively.
In recent months, inflation has decreased, but there is an anticipated temporary rise in the near future. According to the latest Eurosystem staff projections for the euro area, inflation is expected to gradually decrease throughout the next year, reaching the Governing Council’s 2% target in 2025. The staff projects headline inflation to average 5.4% in 2023, 2.7% in 2024, 2.1% in 2025, and 1.9% in 2026. Notably, these figures represent a downward revision for 2023 and particularly for 2024 compared to the September staff projections.
Underlying inflation has continued to decrease, but elevated domestic price pressures persist, mainly due to robust growth in unit labour costs. The Eurosystem staff predicts that inflation, excluding energy and food, will average 5.0% in 2023, 2.7% in 2024, 2.3% in 2025, and 2.1% in 2026. This indicates a gradual decline in underlying inflation over the specified years.
The impact of past interest rate increases is strongly affecting the economy, with tighter financing conditions leading to reduced demand and contributing to a decline in inflation. In the near term, economic growth is expected to remain subdued. However, the Eurosystem staff anticipates a recovery driven by factors such as rising real incomes, stemming from falling inflation and increasing wages, along with improved foreign demand. Consequently, they foresee an increase in growth, with projections averaging 0.6% for 2023, 0.8% for 2024, and 1.5% for both 2025 and 2026.
In ensuring that inflation returns to its 2% medium-term target in a timely manner, the Governing Council will continue to follow a data-based approach in determining the appropriate level and duration of its monetary policy restriction. As such, its monetary policy stance will continue to be in accordance with incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. Therefore, the Governing Council’s future decisions will ensure its policy rates will be set at sufficiently restrictive levels for as long as necessary.
Disclaimer:
Analyst Certification – The views expressed in this research report accurately reflect the personal views of Mayberry Investments Limited Research Department about those issuer(s) or securities as at the date of this report. Each research analyst (s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation(s) or view(s) expressed by that research analyst in this research report.
Company Disclosure – The information contained herein has been obtained from sources believed to be reliable, however its accuracy and completeness cannot be guaranteed. You are hereby notified that any disclosure, copying, distribution or taking any action in reliance on the contents of this information is strictly prohibited and may be unlawful. Mayberry may effect transactions or have positions in securities mentioned herein. In addition, employees of Mayberry may have positions and effect transactions in the securities mentioned herein.
