What changed in the European Central Bank statement — 26 October 2023

European Central Bank held policy at 4.00%. The ECB paused its hiking cycle but delivered a hawkish hold, replacing the prior's hike-and-peak posture with an explicit commitment to maintain restrictive rates. This signals that despite acknowledging some disinflation progress, the Council remains vigilant and will not cut rates in the near term.

Decision

Decision: hold
Deposit facility rate: 4.00%

Going into the decision

On the day, the committee read as hawkish — 0.7 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 paused its hiking cycle but delivered a hawkish hold, replacing the prior's hike-and-peak posture with an explicit commitment to maintain restrictive rates. This signals that despite acknowledging some disinflation progress, the Council remains vigilant and will not cut rates in the near term.

Inflation — More dovish. Current document acknowledges inflation dropping markedly and underlying easing, softening the prior's unambiguously hawkish inflation rhetoric.
Labour Market — Little changed. No labour market passages in either document; no shift.
Rate Path — More hawkish. Prior rate hike with peak-signalling forward guidance replaced by a pause with explicitly hawkish forward guidance committing to keep rates restrictive for long.
Balance Sheet — Little changed. No balance sheet passages in either document; no shift.

Previous wording

Inflation continues to decline but is still expected to remain too high for too long.
inflation: Justifies the hike and hawkish stance; inflation still problematic.

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

The September ECB staff macroeconomic projections for the euro area see average inflation at 5.6% in 2023, 3.2% in 2024 and 2.1% in 2025. This is an upward revision for 2023 and 2024 and a downward revision for 2025.
inflation: Inflation forecasts revised up for near term, delaying return to target.

Underlying price pressures remain high, even though most indicators have started to ease.
inflation: Core inflation still elevated, keeping pressure on ECB.

With the increasing impact of this tightening on domestic demand and the weakening international trade environment, ECB staff have lowered their economic growth projections significantly.
rate path: Growth downgrade highlights trade-off between inflation and recession risk.

Based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.
rate path: Signals rates may be at peak, but no cut in sight; duration matters.

Current wording

Inflation is still expected to stay too high for too long, and domestic price pressures remain strong.
inflation: Highlights persistent inflation, supporting the hawkish stance.

The Governing Council today decided to keep the three key ECB interest rates unchanged.
rate path: Confirms the market expectation of a pause.

inflation dropped markedly in September, including due to strong base effects, and most measures of underlying inflation have continued to ease.
inflation: Indicates progress on inflation, softening the overall hawkish tone.

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: Standard flexibility language, no new risk assessment.

Based on its current assessment, the Governing Council considers that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal.
rate path: Signals that rates will stay high for an extended period, no early cuts.

Official statement

Monetary policy decisions

26 October 2023

The Governing Council today decided to keep the three key ECB interest rates unchanged. The incoming information has broadly confirmed its previous assessment of the medium-term inflation outlook. Inflation is still expected to stay too high for too long, and domestic price pressures remain strong. At the same time, inflation dropped markedly in September, including due to strong base effects, and most measures of underlying inflation have continued to ease. The Governing Council’s past interest rate increases continue to be transmitted forcefully into financing conditions. This is increasingly dampening demand and thereby helps push down inflation.

The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. Based on its current assessment, the Governing Council considers that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal. The Governing Council’s future decisions will ensure that its policy rates will be set at sufficiently restrictive 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, the Governing Council’s interest rate decisions will 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.

Key ECB interest rates

The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 4.50%, 4.75% and 4.00% respectively.

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

The APP portfolio is declining at a measured and predictable pace, as the Eurosystem no longer reinvests the principal payments from maturing securities.

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.