ECB keeps key rates unchanged as energy shock drives up inflation and lowers growth

The Governing Council decided to keep the three key ECB interest rates unchanged, with the interest rates on the deposit facility, the main refinancing operations and the marginal lending facility remaining at 2.50%, 2.65% and 2.90% respectively.

The Governing Council said energy prices have continued to rise, posing upside risks to the inflation outlook and downside risks to the growth outlook. While the full effects of the energy shock are still unfolding, underlying inflation has remained broadly stable so far and wages do not show a material response at this stage. But the increased magnitude and duration of the energy shock, as well as the implications for indirect and second-round effects, are likely to drive up inflation and lower growth.

Financing conditions have tightened since the Governing Council's last meeting, which is likely to weigh on inflation and growth. The Governing Council said it remains well positioned to navigate the current elevated uncertainty and will follow a data-dependent and meeting-by-meeting approach, without pre-committing to a particular rate path.

The Eurosystem no longer reinvests the principal payments from maturing securities, so the asset purchase programme and pandemic emergency purchase programme portfolios are declining at a measured and predictable pace. The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation stabilises at its 2% target in the medium term, and the Transmission Protection Instrument is available to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across all euro area countries.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:45 CET today.