There were a number of technical details. These include a minor change in the rate at which minimum reserves are remunerated (now the deposit rate rather than the main refinancing rate) and a comprehensive revision of TLTRO conditions. The latter will lead to a significant drop in excess liquidity as early as November 23.
"Inflation risks predominate, while growth risks are on the downside."
Slowing growth and excessive inflation are increasingly coming to the fore, leaving the ECB statement largely unchanged. As the ECB continues to tighten monetary policy, recession risks to the euro area economy are increasing. Inflation remains too high, and the ECB expects it to remain above target for an extended period as price pressures continue to build. Therefore, further tightening of monetary policy is needed to guard against the risk of a persistent upward shift in inflation expectations. Lagarde acknowledged that wage growth could accelerate in the face of a historically tight labor market, which, combined with the impact of the depreciation of the euro, means that inflation risk remains strongly tilted to the upside. Rapid interest rate hikes by the ECB are likely to further exacerbate downside risks to the economy in 2023, in addition to the impact of rising energy prices on real disposable income. The latest bank lending survey already pointed to a deterioration in credit conditions as demand for loans, especially for fixed investment, weakened. Lagarde also reiterated her call for temporary, targeted and tailored fiscal policies to avoid conflicts with the ECB's mandate to fight inflation.