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

07/28/2023 / Press release

Conditions in the euro area labour market remain robust in the wake of a slowdown in economic growth. With general price increases have been gradually easing, core inflation has remained at high levels. Financial markets are showing signs of past monetary policy decisions. All these factors led the Governing Council members to decide to raise key interest rates for the ninth consecutive monetary policy meeting, this time again by 25 basis points. The decision was also taken to remunerate banks’ minimum reserves at an interest rate of zero. 

The latest data show signs of a slowdown in economic activity in the euro area. This is primarily the result of the contraction in manufacturing activity, while survey data also point to a moderation of activity growth in services. Meanwhile, inflation is slowing in line with the latest macroeconomic forecasts, while core inflation remains high. Similarly, the euro area’s economic cooling has not yet been reflected in the labour market, which represents a key risk to the persistence of core inflation at a higher level for some time.  

Market expectations of the level of key interest rates have risen since the last monetary policy meeting of the Governing Council. The increase in euro area government bond yields has remained limited. Volatility in riskier segments of the financial market has remained low, and credit premiums and borrowing costs have been relatively stable. This also applies to the banking sector. At the end of June, a total of EUR 506 billion of TLTRO-III operations was repaid by the Eurosystem banks. Banks prepared for the maturity in advance, so this did not cause any major money market movements. The monetary policy tightening is also increasingly being reflected in the banking sector. Lending rates are continuing to increase in line with the increase in key interest rates, while lending activity has moderated sharply, mainly due to a decline in demand for loans.

In these circumstances, the Governing Council decided to go ahead with the key interest rate rise, this time again by 25 basis points. In order to maintain the effectiveness of monetary policy, it was also decided to remunerate banks’ minimum reserves at an interest rate of zero. 

In this context, I would like to stress that our future decisions will continue to ensure that interest rates are kept at sufficiently restrictive levels for as long as it takes for inflation to return to our 2-percent target in time. As before, each step will depend on the current situation, in particular on the economic and financial data, developments in core inflation, and the effectiveness of our measures.