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

03/17/2023 / Press release

The latest economic forecasts for the euro area are for growth of 1.0% this year, higher than previously projected, and slightly stronger rates in 2024 and 2025. Inflation will average slightly less over the year (5.3%), and a more significant slowdown is expected over the next two years. 

In these circumstances the Governing Council of the ECB opted yesterday for further action, and raised key interest rates at the sixth consecutive monetary policy meeting, once again by 50 percentage points. The next 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. We are closely monitoring the increased uncertainty on international financial markets, but the banking system in the euro area and in Slovenia remains robust. 

The Governing Council decided to raise all three key ECB interest rates again, by 50 basis points. We are taking great care to monitor the current market tensions, and stand ready to respond as necessary to maintain price stability and financial stability in the euro area. The decision is based on current data showing persistently high core inflation, and new forecasts indicating that inflation will remain elevated this year and next year.  

The economic forecasts for the euro area discussed yesterday suggest a growth rate of 1.0% this year, higher than previously projected, with growth strengthening further to 1.6% in 2024 and 2025 as the current limiting factors normalise. Thanks to the favourable impact of falling energy prices, inflation will slow more markedly over the course of the year than previously expected, and will average 5.3% this year. Inflation is expected to slow further in 2024 and 2025 amid the normalisation of cost pressures and the disinflationary effects of tighter monetary policy. It will stand at 2.9% in 2024, and 2.1% in 2025. 

The forecasts also take account of the effects of monetary policy measures, whether already evident or anticipated. The rises in key interest rates are being reflected in borrowing costs for the private non-financial sector. Interest rates on new loans across the entire euro area have already adjusted to the new key rates: in the case of loans to non-financial corporations, they have risen by 300 basis points over the course of the monetary policy normalisation. Conversely, monetary policy decisions are being reflected to a much lesser extent in interest rates on deposits, particularly in Slovenia, on account of the high bank liquidity and the large deposit base. 

The situation on the financial markets in the last week has been profoundly affected by the global increase in uncertainty and risk aversion, which is being driven by developments in the banking sector in the US and in Switzerland. Banka Slovenije should take this opportunity to reiterate that the banking system in Slovenia and in the euro area remains resilient to systemic risks, and its liquidity remains high. In light of the great uncertainty on the financial markets in recent days, particularly in the US and Switzerland, we should emphasise that Banka Slovenije is well prepared for risks of this type, having increased capital requirements over the last year for banks operating in Slovenia.