What changed in the European Central Bank statement — 27 October 2022

European Central Bank raised policy at 1.50%. The ECB statement shows a clear hawkish escalation: inflation language is more urgent, labour market concerns are dropped, and additional tightening via TLTRO adjustment is introduced. This signals that the Governing Council will continue raising rates aggressively at upcoming meetings, likely with another 75bp hike in December.

Decision

Decision: hike
Deposit facility rate: 1.50%

Going into the decision

On the day, the committee read as hawkish — 2.0 on a scale where +3 means every member wants higher rates and −3 means every member wants cuts.

Reconstructed from official member remarks published before the decision date. 5 of 27 active members had stored official remarks.

What changed

The ECB statement shows a clear hawkish escalation: inflation language is more urgent, labour market concerns are dropped, and additional tightening via TLTRO adjustment is introduced. This signals that the Governing Council will continue raising rates aggressively at upcoming meetings, likely with another 75bp hike in December.

Inflation — More hawkish. The current document intensifies the tone by describing inflation as 'far too high' and set to stay above target for an 'extended period,' compared to the prior's projection-based assessment.
Labour Market — More hawkish. The prior document flagged a 'substantial slowdown' and stagflation risk, but the current document omits any labour market or growth concern, shifting focus entirely to inflation.
Rate Path — More hawkish. Both documents deliver a 75bp hike and expect further raises, but the current adds TLTRO recalibration and a risk balance passage explicitly guarding against persistent inflation expectations, reinforcing the hawkish stance.
Balance Sheet — Little changed. The current document introduces reinvestment commitments for APP and PEPP, which are neutral in direction; no equivalent passage exists in the prior document.

Previous wording

This major step frontloads the transition from the prevailing highly accommodative level of policy rates towards levels that will ensure the timely return of inflation to the ECB’s 2% medium-term target.
rate path: Emphasizes urgency to bring inflation back to target.

Based on its current assessment, over the next several meetings the Governing Council expects to raise interest rates further to dampen demand and guard against the risk of a persistent upward shift in inflation expectations.
rate path: Explicit commitment to further rate hikes in coming meetings.

The Governing Council’s future policy rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach.
rate path: Retains flexibility despite the hawkish signal.

According to Eurostat’s flash estimate, inflation reached 9.1% in August.
inflation: Inflation far above target, justifying aggressive action.

inflation is now expected to average 8.1% in 2022, 5.5% in 2023 and 2.3% in 2024.
inflation: Inflation projected above 2% even in 2024, warranting continued tightening.

After a rebound in the first half of 2022, recent data point to a substantial slowdown in euro area economic growth, with the economy expected to stagnate later in the year and in the first quarter of 2023.
labour market: Stagflationary backdrop complicates further tightening.

Current wording

The Governing Council took today’s decision, and expects to raise interest rates further, to ensure the timely return of inflation to its 2% medium-term inflation target.
rate path: Explicit expectation of further hikes, reinforcing tightening bias.

The Governing Council will base the future policy rate path on the evolving outlook for inflation and the economy, following its meeting-by-meeting approach.
rate path: Data-dependent approach, no pre-commitment to a specific path.

The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it started raising the key ECB interest rates and, in any case, for as long as necessary to maintain ample liquidity conditions and an appropriate monetary policy stance.
rate path: Reinvestment continues, no active balance sheet reduction yet.

Inflation remains far too high and will stay above the target for an extended period.
inflation: Strong language confirms persistence, justifying further tightening.

In recent months, soaring energy and food prices, supply bottlenecks and the post-pandemic recovery in demand have led to a broadening of price pressures and an increase in inflation.
inflation: Highlights broadening of inflation, increasing urgency for action.

Official statement

Monetary policy decisions

27 October 2022

The Governing Council today decided to raise the three key ECB interest rates by 75 basis points. With this third major policy rate increase in a row, the Governing Council has made substantial progress in withdrawing monetary policy accommodation. The Governing Council took today’s decision, and expects to raise interest rates further, to ensure the timely return of inflation to its 2% medium-term inflation target. The Governing Council will base the future policy rate path on the evolving outlook for inflation and the economy, following its meeting-by-meeting approach.

Inflation remains far too high and will stay above the target for an extended period. In September, euro area inflation reached 9.9%. In recent months, soaring energy and food prices, supply bottlenecks and the post-pandemic recovery in demand have led to a broadening of price pressures and an increase in inflation. The Governing Council’s monetary policy is aimed at reducing support for demand and guarding against the risk of a persistent upward shift in inflation expectations.

The Governing Council also decided to change the terms and conditions of the third series of targeted longer-term refinancing operations (TLTRO III). During the acute phase of the pandemic, this instrument played a key role in countering downside risks to price stability. Today, in view of the unexpected and extraordinary rise in inflation, it needs to be recalibrated to ensure that it is consistent with the broader monetary policy normalisation process and to reinforce the transmission of policy rate increases to bank lending conditions. The Governing Council therefore decided to adjust the interest rates applicable to TLTRO III from 23 November 2022 and to offer banks additional voluntary early repayment dates.

Finally, in order to align the remuneration of minimum reserves held by credit institutions with the Eurosystem more closely with money market conditions, the Governing Council decided to set the remuneration of minimum reserves at the ECB’s deposit facility rate.

The details of the changes to the TLTRO III terms and conditions are described in a separate press release to be published at 15:45 CET. Another technical press release, detailing the change to the remuneration of minimum reserves, will also be published at 15:45 CET.

Key ECB interest rates

The Governing Council decided to raise the three key ECB interest rates by 75 basis points. Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 2.00%, 2.25% and 1.50% respectively, with effect from 2 November 2022.

Asset purchase programme (APP) and pandemic emergency purchase programme (PEPP)

The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it started raising the key ECB interest rates and, in any case, for as long as necessary to maintain ample liquidity conditions and an appropriate monetary policy stance.

As concerns the PEPP, the Governing Council intends to reinvest the principal payments from maturing securities purchased under the programme until at least the end of 2024. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance.

The Governing Council will continue applying flexibility in reinvesting redemptions coming due in the PEPP portfolio, with a view to countering risks to the monetary policy transmission mechanism related to the pandemic.

Refinancing operations

The Governing Council decided to adjust the interest rates applicable to TLTRO III. From 23 November 2022 until the maturity date or early repayment date of each respective outstanding TLTRO III operation, the interest rate on TLTRO III operations will be indexed to the average applicable key ECB interest rates over this period. The Governing Council also decided to offer banks additional voluntary early repayment dates. In any case, the Governing Council will regularly assess how targeted lending operations are contributing to its monetary policy stance.

***

The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation stabilises at its 2% target over the medium term. 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, thus allowing the Governing Council to more effectively deliver on its price stability mandate.

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

Background reading

Cadence's comparison is generated from the official documents. Read the methodology.