What changed in the European Central Bank statement — 25 January 2024

European Central Bank held policy at 4.00%. The ECB holds rates steady but introduces a clear QT schedule, marking a modest hawkish shift in forward guidance and risk balance, while inflation language becomes slightly more dovish on disinflation progress. Next decision likely unchanged with focus on data, as the QT timeline provides a gradual tightening path.

Decision

Decision: hold
Deposit facility rate: 4.00%

Going into the decision

On the day, the committee read as neutral — 0.2 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 ECB holds rates steady but introduces a clear QT schedule, marking a modest hawkish shift in forward guidance and risk balance, while inflation language becomes slightly more dovish on disinflation progress. Next decision likely unchanged with focus on data, as the QT timeline provides a gradual tightening path.

Inflation — More dovish. Current language emphasizes declining underlying inflation and demand dampening, whereas prior highlighted below-target projections in 2026, making the overall tone slightly more confident in disinflation.
Labour Market — Little changed. No labour market passages in either document, so no shift.

Previous wording

Overall, staff expect headline inflation to average 5.4% in 2023, 2.7% in 2024, 2.1% in 2025 and 1.9% in 2026.
inflation: Inflation projected below target in 2026, allowing eventual rate cuts.

Underlying inflation has eased further. But domestic price pressures remain elevated, primarily owing to strong growth in unit labour costs.
inflation: Core inflation easing but sticky due to labour costs, wage pressure still a concern.

Eurosystem staff expect economic growth to remain subdued in the near term.
rate path: Weak growth reduces urgency for further tightening.

Current wording

Aside from an energy-related upward base effect on headline inflation, the declining trend in underlying inflation has continued, and the past interest rate increases keep being transmitted forcefully into financing conditions.
inflation: Underlying inflation declining but transmission forceful; suggests rates are working.

Tight financing conditions are dampening demand, and this is helping to push down inflation.
inflation: Demand dampening supports disinflation; sign that policy is effective.

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 readiness language; no specific risk mentioned.

Official statement

Monetary policy decisions

25 January 2024

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. Aside from an energy-related upward base effect on headline inflation, the declining trend in underlying inflation has continued, and the past interest rate increases keep being transmitted forcefully into financing conditions. Tight financing conditions are dampening demand, and this is helping to 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.

The Governing Council intends to continue to reinvest, in full, the principal payments from maturing securities purchased under the PEPP during the first half of 2024. Over the second half of the year, it intends to reduce the PEPP portfolio by €7.5 billion per month on average. The Governing Council intends to discontinue reinvestments under the PEPP at the end of 2024.

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.