MNI BRIEF: ECB Holds Rates, Announces H2 PEPP Reinvestment End

The ECB kept key interest rates on hold Thursday, and announced it would reduce reinvestments under its Pandemic Emergency Purchase Programme at the rate of EUR7.5 billion per month on average from the second half of next year before discontinuing them at the end of 2024 (see MNI INTERVIEW2: ECB To Discuss PEPP Reinvestment In Dec-Vujcic).

The ECB repeated guidance for policy rates to be set "at sufficiently restrictive levels for as long as necessary," and for "a data-dependent approach to determining the appropriate level and duration of restriction."

December’s staff macroeconomic projections see headline inflation averaging 5.4% in 2023, 2.7% in 2024, 2.1% in 2025 and 1.9% in 2026.

Underlying inflation continues to ease, but domestic price pressures remain elevated, the ECB said. Core inflation is expected to average 5.0% in 2023, 2.7% in 2024, 2.3% in 2025 and 2.1% in 2026, due largely to strong unit labour costs.

Euro area growth is expected to rise, from an average of 0.6% for 2023 to 0.8% for 2024.