Monetary policy decisions

16 March 2000

At today's meeting (which was also attended by the President of the European Commission, Mr. R. Prodi) the Governing Council of the ECB took the following monetary policy decisions:

  1. The interest rate on the main refinancing operations of the Eurosystem will be raised by 0.25 percentage point to 3.5%, starting from the operation to be settled on 22 March 2000.

  2. The interest rate on the marginal lending facility will be raised by 0.25 percentage point to 4.5%, with effect from 17 March 2000.

  3. The interest rate on the deposit facility will be raised by 0.25 percentage point to 2.5%, with effect from 17 March 2000.

Following the regular examination of the outlook for price developments in the euro area on the basis of the latest information on monetary, financial and other economic developments, the Governing Council confirmed the assessment which was presented by the President of the ECB in his introductory statement at the press conference after the Governing Council meeting on 2 March 2000, as well as in the following issue of the ECB Monthly Bulletin. As noted there, economic conditions and prospects for the euro area appear to be better at present than at any time in the past decade. At the same time, upside risks to price stability were seen as a reason for vigilance. Today's decision addresses these upside risks, thereby contributing to maintaining the favourable outlook for the euro area economy.

With regard to the first pillar of the monetary policy strategy of the Eurosystem, the prolonged deviation of M3 growth from the reference value of 4 1/2% points to the existence of ample liquidity in the euro area, especially when seen in conjunction with the continued strong growth of credit granted to the private sector.

Considering the second pillar, most indicators and forecasts point to increasing upward pressures on consumer price inflation over the medium term. The strong rise in oil prices and the downward movement of the exchange rate of the euro in the past are putting upward pressure on import costs and producer prices. In the context of a strong cyclical upswing, there is a risk that these developments could, via second round effects, have lasting effects on consumer price inflation.

Today's increase in ECB interest rates follows the interest rate decisions taken on 4 November 1999 and 3 February 2000 and continues the policy of countering these emerging upside risks to price stability in a timely and pre-emptive manner. By ensuring a non-inflationary environment, this move will contribute to ensuring sustainable economic growth in the euro area.

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