The European Central Bank (ECB) decided to leave the interest rates on the main refinancing operations, the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.50%, respectively, as expected.

Market reaction

The initial market reaction, so far, has been muted and the EUR/USD pair was last seen trading with modest gains around the 1.1830 region. 

Key takeaways from the accompanying policy statement:

  • ECB judges that favourable financing conditions can be maintained with a moderately lower pace of PEPP purchases.
  • APP purchases to continue at a monthly pace of €20 billion.
  • PEPP envelope stays at €1.85 trillion and will run at least through end of March 2022.
  • Ready to adjust all tools to stabilize inflation at 2%.
  • Inflation may moderately exceed goal for transitory period.
  • PEPP to prevent undue tightening of financing conditions.
  • PEPP flexible regarding time, asset classes, countries.
  • Do not fave to use full PEPP envelope, can also increase.
  • Future roll-off of PEPP bonds won’t harm policy stance.
  • ECB to re-invest maturing PEPP bonds at least through end-2023.
  • To reinvest QE debt for extended time after first rate hike.

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