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

The latest economic projections for the euro area are forecasting slightly slower economic growth, and slightly higher inflation. In this situation, with inflation likely to remain high for a longer period, the Governing Council of the ECB decided to further raise the key interest rates by 25 basis points. The current assessment is that the key interest rates have thereby reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target. 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% target in a timely manner.

Yesterday the Governing Council discussed the latest economic projections, which present a slightly worse outlook for economic growth over the 2023 to 2025 period amid falling inflation. This year’s GDP growth is forecast at 0.7%, in light of the weak current dynamics, which will continue over the remainder of the year. Economic growth is then forecast to strengthen to 1.0% in 2024 and 1.5% in 2025 amid the positive effects of lower inflation, an improving situation in global trade, and the gradual strengthening of real household income. Inflation will gradually fall over the projection horizon: it will average 5.6% this year, and will fall further to 3.2% in 2024 and 2.1% in 2025, partly as a result of the growing anti-inflation effects of tighter monetary policy. 

The situation on the financial markets was stable in August. This is evidenced in low volatility and stable credit premiums in higher-risk financial segments, despite the slightly worsened economic outlook for the euro area. Given the persistent inflation, the markets are expecting the key interest rates to remain at high levels for some time. This has driven a rise in yields on public-sector and private-sector bonds in the euro area, particularly at longer maturities.

In light of the latest projections, and the fact that inflation remains high despite slowing, the Governing Council decided to raise the key interest rates once again by 25 basis points. Based on the current assessment, we feel that the key interest rates have thus reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to returning inflation to the target rate.

I should reiterate that 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. Our future decisions will thus 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% target in a timely manner.