What changed in the European Central Bank statement — 16 March 2023

European Central Bank raised policy at 3.00%. The ECB delivered the promised 50bp hike but removed explicit forward guidance on future rate increases, replacing it with a data-dependent approach and emphasising readiness to support financial stability. This represents a dovish pivot in tone, likely signalling that the tightening cycle is nearing its end amid elevated uncertainty.

Decision

Decision: hike
Deposit facility rate: 3.00%

Going into the decision

On the day, the committee read as hawkish — 1.3 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 delivered the promised 50bp hike but removed explicit forward guidance on future rate increases, replacing it with a data-dependent approach and emphasising readiness to support financial stability. This represents a dovish pivot in tone, likely signalling that the tightening cycle is nearing its end amid elevated uncertainty.

Inflation — More hawkish. The current document introduces explicit inflation language emphasising that inflation remains too high and core pressures strong, a hawkish addition compared to prior which lacked such inflation-specific commentary.
Labour Market — Little changed. No labour market signals in either document; judgement remains unchanged.
Rate Path — More dovish. The prior document pre-committed to a 50bp hike in March and expected further tightening, while the current document removes explicit forward guidance and emphasises data-dependence and liquidity support, a dovish shift in rate path signalling.
Balance Sheet — More dovish. The prior risk balance focused on guarding against persistent upward inflation expectations, while the current mentions monitoring market tensions and providing liquidity backstop, a dovish shift on the balance sheet/risk axis.

Previous wording

the Governing Council today decided to raise the three key ECB interest rates by 50 basis points
rate path: Rate hike confirms tightening stance.

it expects to raise them further
rate path: Signal of more tightening ahead.

the Governing Council intends to raise interest rates by another 50 basis points at its next monetary policy meeting in March
rate path: Explicit pre-commitment to March hike.

it will then evaluate the subsequent path of its monetary policy
rate path: Opens door for data-dependent decisions after March.

guard against the risk of a persistent upward shift in inflation expectations
rate path: Shows upside inflation risk is a key concern.

future policy rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach
rate path: Reiteration of meeting-by-meeting approach.

Current wording

Therefore, the Governing Council today decided to increase the three key ECB interest rates by 50 basis points
rate path: Rate hike confirmed; markets focus on size and signal of determination.

The elevated level of uncertainty reinforces the importance of a data-dependent approach to the Governing Council’s policy rate decisions, which will be determined by its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.
rate path: Forward guidance is conditional on data; no pre-commitment to future moves.

In any case, the ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy.
rate path: Reassures markets of liquidity backstop, easing financial conditions.

The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation returns to its 2% target over the medium term and to preserve the smooth functioning of monetary policy transmission.
rate path: Reaffirms commitment to inflation target; optionality on instruments.

The Governing Council is monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the euro area.
rate path: Shows vigilance on financial stability but maintains primary focus on inflation.

Inflation is projected to remain too high for too long.
inflation: Justifies continued tightening; inflation still above target.

ECB staff now see inflation averaging 5.3% in 2023, 2.9% in 2024 and 2.1% in 2025.
inflation: Headline inflation projections slightly lower but above target in 2024; 2025 close to target.

At the same time, underlying price pressures remain strong. Inflation excluding energy and food continued to increase in February and ECB staff expect it to average 4.6% in 2023, which is higher than foreseen in the December projections.
inflation: Core inflation revised up; persistent underlying pressures support further tightening.

Official statement

Monetary policy decisions

16 March 2023

Inflation is projected to remain too high for too long. Therefore, the Governing Council today decided to increase the three key ECB interest rates by 50 basis points, in line with its determination to ensure the timely return of inflation to the 2% medium-term target. The elevated level of uncertainty reinforces the importance of a data-dependent approach to the Governing Council’s policy rate decisions, which will be determined by its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.

The Governing Council is monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the euro area. The euro area banking sector is resilient, with strong capital and liquidity positions. In any case, the ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy.

The new ECB staff macroeconomic projections were finalised in early March before the recent emergence of financial market tensions. As such, these tensions imply additional uncertainty around the baseline assessments of inflation and growth. Prior to these latest developments, the baseline path for headline inflation had already been revised down, mainly owing to a smaller contribution from energy prices than previously expected. ECB staff now see inflation averaging 5.3% in 2023, 2.9% in 2024 and 2.1% in 2025. At the same time, underlying price pressures remain strong. Inflation excluding energy and food continued to increase in February and ECB staff expect it to average 4.6% in 2023, which is higher than foreseen in the December projections. Subsequently, it is projected to come down to 2.5% in 2024 and 2.2% in 2025, as the upward pressures from past supply shocks and the reopening of the economy fade out and as tighter monetary policy increasingly dampens demand.

The baseline projections for growth in 2023 have been revised up to an average of 1.0% as a result of both the decline in energy prices and the economy’s greater resilience to the challenging international environment. ECB staff then expect growth to pick up further, to 1.6%, in both 2024 and 2025, underpinned by a robust labour market, improving confidence and a recovery in real incomes. At the same time, the pick-up in growth in 2024 and 2025 is weaker than projected in December, owing to the tightening of monetary policy.

Key ECB interest rates

The Governing Council decided to raise the three key ECB interest rates by 50 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 3.50%, 3.75% and 3.00% respectively, with effect from 22 March 2023.

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

The APP portfolio is declining at a measured and predictable pace, as the Eurosystem does not reinvest all of the principal payments from maturing securities. The decline will amount to €15 billion per month on average until the end of June 2023 and its subsequent pace will be determined over time.

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

As banks are repaying the amounts borrowed under the targeted longer-term refinancing operations, 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 returns to its 2% target over the medium term and to preserve the smooth functioning of monetary policy transmission. The ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed. Moreover, 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.