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Monetary policy decisions

31 August 2000

At today's meeting the Governing Council of the ECB took the following monetary policy decisions:

  1. The minimum bid rate on the main refinancing operations of the Eurosystem will be raised by 0.25 percentage point to 4.50%, starting from the operation to be settled on 6 September 2000.

  2. The interest rate on the marginal lending facility will be raised by 0.25 percentage point to 5.50%, with effect from 1 September 2000.

  3. The interest rate on the deposit facility will be raised by 0.25 percentage point to 3.50%, with effect from 1 September 2000.

The Governing Council is of the view that economic growth conditions and prospects in the euro area are very favourable. In order to maintain this benign environment, price stability over the medium term must be ensured. While present conditions are largely influenced by oil price and exchange rate developments and cannot be remedied by monetary policy in the short term, it is imperative that medium-term upward pressure on prices be contained. Today's policy decisions support the favourable prospects for high economic growth in the euro area.

In the context of the first pillar of the monetary policy strategy of the ECB, although the measures taken since November 1999 are gradually feeding their way through, the latest available information indicates that M3 growth has continued to deviate on the upside from the reference value of 4½%. At the same time, the expansion of credit to the private sector, at around 10%, suggests that households and firms regard financing conditions in the euro area as being very favourable. In the context of the robust expansion of economic activity, a continuation of ample liquidity conditions would constitute a risk to price stability.

Developments in key indicators related to the second pillar point in the same direction. The protracted depreciation of the exchange rate of the euro and the renewed rise in oil prices have increasingly put upward pressure on import prices and consumer prices in the euro area. At the same time, recent data have confirmed that the euro area has entered a period of strong growth and that the outlook remains very positive.

The Governing Council will continue to ensure that price stability is maintained in the euro area and will remain alert to all emerging risks to price stability. At the same time, it stresses that both sound public finances, in particular strict adherence to the criteria laid down in the Stability and Growth Pact, and the continuation of structural measures to enhance the flexibility of labour and goods markets will be the key to a lasting increase in the growth potential of the euro area.