What changed in the European Central Bank statement — 15 June 2023

European Central Bank raised policy at 3.50%. The June statement keeps the same rate hike and forward guidance but introduces tentative softening in underlying inflation and greater confidence in transmission, while adding a hawkish labour market note. This mixed tone suggests the ECB is preparing to potentially pause if disinflation continues, but labour market strength keeps a hawkish bias.

Decision

Decision: hike
Deposit facility rate: 3.50%

Going into the decision

On the day, the committee read as hawkish — 1.2 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 June statement keeps the same rate hike and forward guidance but introduces tentative softening in underlying inflation and greater confidence in transmission, while adding a hawkish labour market note. This mixed tone suggests the ECB is preparing to potentially pause if disinflation continues, but labour market strength keeps a hawkish bias.

Inflation — More dovish. Prior document stressed persistently high underlying inflation; current adds 'tentative signs of softening' in underlying pressures, a modest dovish nuance.
Labour Market — More hawkish. Prior document had no labour market signal; current introduces robust labour market as a factor delaying core inflation decline, a new hawkish element.

Previous wording

The inflation outlook continues to be too high for too long.
inflation: Strong language on inflation persistence justifies further tightening.

the Governing Council today decided to raise the three key ECB interest rates by 25 basis points.
rate path: Confirms the rate hike itself.

Headline inflation has declined over recent months, but underlying price pressures remain strong.
inflation: Underlying inflation sticky, supporting further rate increases.

At the same time, the past rate increases are being transmitted forcefully to euro area financing and monetary conditions, while the lags and strength of transmission to the real economy remain uncertain.
rate path: Acknowledges transmission but flags uncertainty about its full impact.

The Governing Council’s future decisions will ensure that the policy rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to the 2% medium-term target and will be kept at those levels for as long as necessary.
rate path: Commitment to keep rates high for an extended period.

Current wording

Inflation has been coming down but is projected to remain too high for too long.
inflation: Reiterates that inflation is still above target and persistent.

It therefore today decided to raise the three key ECB interest rates by 25 basis points.
rate path: Direct rate hike confirms tightening bias.

Indicators of underlying price pressures remain strong, although some show tentative signs of softening.
inflation: Mixed signal: core inflation still strong but with nascent easing.

Tighter financing conditions are a key reason why inflation is projected to decline further towards target, as they are expected to increasingly dampen demand.
rate path: Transmission is working, supporting the disinflation outlook.

The Governing Council’s future decisions will ensure that the key ECB interest rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to the 2% medium-term target and will be kept at those levels for as long as necessary.
rate path: Commits to sufficiently restrictive rates and a prolonged hold.

Staff have revised up their projections for inflation excluding energy and food, especially for this year and next year, owing to past upward surprises and the implications of the robust labour market for the speed of disinflation.
labour market: Tight labour market is slowing the decline in core inflation.

Official statement

Monetary policy decisions

15 June 2023

Inflation has been coming down but is projected to remain too high for too long. The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. It therefore today decided to raise the three key ECB interest rates by 25 basis points.

The rate increase today reflects the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission. According to the June macroeconomic projections, Eurosystem staff expect headline inflation to average 5.4% in 2023, 3.0% in 2024 and 2.2% in 2025. Indicators of underlying price pressures remain strong, although some show tentative signs of softening. Staff have revised up their projections for inflation excluding energy and food, especially for this year and next year, owing to past upward surprises and the implications of the robust labour market for the speed of disinflation. They now see it reaching 5.1% in 2023, before it declines to 3.0% in 2024 and 2.3% in 2025. Staff have slightly lowered their economic growth projections for this year and next year. They now expect the economy to grow by 0.9% in 2023, 1.5% in 2024 and 1.6% in 2025.

At the same time, the Governing Council’s past rate increases are being transmitted forcefully to financing conditions and are gradually having an impact across the economy. Borrowing costs have increased steeply and growth in loans is slowing. Tighter financing conditions are a key reason why inflation is projected to decline further towards target, as they are expected to increasingly dampen demand.

The Governing Council’s future decisions will ensure that the key ECB interest rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to the 2% medium-term target and will be kept at those levels for as long as necessary. The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, its interest rate decisions will continue to be based on 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 confirms that it will discontinue the reinvestments under the asset purchase programme as of July 2023.

Key ECB interest rates

The Governing Council decided to raise the three key ECB interest rates by 25 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 4.00%, 4.25% and 3.50% respectively, with effect from 21 June 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. The Governing Council will discontinue the reinvestments under the APP as of July 2023.

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 and their ongoing repayment are contributing to its monetary policy stance.

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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. 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.