President Lagarde presents the latest monetary policy decisions – 26 October 2023
Oct 26, 2023
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President Lagarde discusses monetary policy decisions, the state of the euro-area economy, inflation expectations, risk assessment, and financial conditions. The governing council keeps interest rates unchanged to address inflation and emphasizes a data-dependent approach.
The ECB has decided to maintain unchanged interest rates and is committed to returning inflation to the target of 2%.
The euro-area economy is weakening, with declining manufacturing output, negative effects on investment and consumer spending, and signs of a weakening labor market.
Deep dives
Key ECB interest rates unchanged, inflation expected to stay high for too long
The governing council of the European Central Bank (ECB) decided to maintain the three key interest rates unchanged. The medium-term inflation outlook has been broadly confirmed, indicating that inflation is still expected to remain high for an extended period. Domestic price pressures continue to be strong. However, there was a significant decline in inflation in September due to various factors, including strong base effects. Measures of underlying inflation have also continued to decrease. The previous interest rate increases have been effective in influencing financing conditions, leading to a dampening of demand and contributing to the reduction of inflation. The ECB is committed to ensuring that inflation returns to the target of 2% in a timely manner.
Euro-area economy weakened by falling manufacturing output and weakening labor market
Recent information suggests a weakening euro-area economy. Manufacturing output has been consistently declining, influenced by subdued foreign demand and tighter financing conditions. Investment and consumer spending have been negatively affected, and the services sector has also weakened. The spillover from weaker industrial activity to other sectors has contributed to this downturn. While economic activity has been supported by a strong labor market, signs of labor market weakening have emerged, with fewer new jobs being created. As the energy crisis subsides, governments should gradually roll back related support measures to avoid increasing medium-term inflationary pressures. Structural reforms and investments in enhancing the euro-area supply capacity, along with the full implementation of the next generation EU program, can help reduce price pressures and support the green and digital transition.
Inflation declines in September, while credit dynamics weaken and interest rates rise
Inflation dropped to 4.3% in September, a notable decrease from the previous month. Lower energy and food prices contributed to this decline, along with improvements in supply conditions and the impact of tighter monetary policy on demand and corporate pricing power. Measures of underlying inflation continue to decline, although domestic price pressures remain strong due to rising wages. Risks to economic growth are primarily tilted to the downside, and growth may be lower if monetary policy effects turn out stronger than anticipated. Higher energy and food costs, along with geopolitical tensions, pose upside risks to inflation. Longer-term interest rates have increased, leading to higher borrowing rates for businesses and households. As a result, credit dynamics have weakened, with slower loan growth for both firms and households. Amid weak lending, the annual growth rate of M3 has reached its lowest level since the beginning of the Euro. Despite these challenges, the ECB remains committed to pursuing its mandate and adjusting instruments as necessary to ensure the timely return of inflation to the target.
Today our Governing Council decided on monetary policy, determining what’s needed to return inflation to our 2% goal in a timely manner.
Listen to President Christine Lagarde present today’s decisions.
The statement also covers:
- how the economy is performing
- how we expect prices to develop
- the risks to the economic outlook
- the dynamics behind financial and monetary conditions
Published and recorded during our press conference on 26 October 2023 in Athens, Greece.
Additional material:
Our monetary policy statement at a glance, 26 October 2023 https://www.ecb.europa.eu/press/pressconf/visual-mps/2023/html/mopo_statement_explained_october.en.html
Christine Lagarde, Luis de Guindos: Monetary policy statement, 26 October 2023 https://www.ecb.europa.eu/press/pressconf/2023/html/ecb.is231026~c23b4eb5f0.en.html
Monetary policy decisions, 26 October 2023 https://www.ecb.europa.eu/press/pr/date/2023/html/ecb.mp231026~6028cea576.en.html
Combined monetary policy decisions and statement, 26 October 2023 https://www.ecb.europa.eu/press/pressconf/shared/pdf/ecb.ds231026~3af2df9818.en.pdf
European Central Bank
https://www.ecb.europa.eu/home/html/index.en.html
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