The Banco de Portugal publishes today the 2022 Report on Monetary Policy Implementation. The report describes the implementation of the measures taken by the Eurosystem with the aim of safeguarding price stability, focusing on the activities carried out by the Banco de Portugal.
In 2022, the euro area experienced a significant and widespread increase in inflation, which influenced the monetary policy of the European Central Bank (ECB) decisively. The ECB announced the end of net asset purchases under the asset purchase programme (APP) and the start of the gradual increase in key interest rates.
The first increase in key ECB interest rates took place in July and marked the end of negative interest rates that had been in place since 2014. Official interest rates continued to increase at the three subsequent monetary policy meetings and, by end of the year, the interest rate on the deposit facility stood at 2%, the interest rate on the main refinancing operations at 2.5% and the interest rate on the marginal lending facility at 2.75%.
The rates applied to targeted longer-term refinancing operations (TLTRO-III) and the remuneration of credit institutions’ minimum reserves and government deposits held with the Eurosystem were also adjusted.
The Transmission Protection Mechanism (TPI) was set up to prevent fragmentation in the euro area, especially during the monetary policy normalisation process.
The ECB also announced the gradual phasing-out, between July 2022 and March 2024, of the temporary collateral easing and risk control measures adopted during the pandemic crisis.
In line with the tightening of monetary policy, the amounts obtained by Portuguese counterparties from the Banco de Portugal in liquidity-providing operations decreased considerably, due to TLTRO III repayments, both early and at maturity. The total value of the assets used as collateral also decreased by around €12 billion from the end of 2021.
On the other hand, recourse to the deposit facility increased by over €50 billion, as credit institutions transferred most of their excess reserves to this facility in the last months of the year, driven by its positive remuneration and the context of excess liquidity.
At the end of 2022, the Banco de Portugal held €86 billion in securities purchased for monetary policy purposes (APP and PEPP), 98% of which corresponded to Portuguese public debt and debt issued by supranational institutions.
The normalisation of monetary policy impacted the size of the Banco de Portugal’s balance sheet, mainly due to the decrease in funding to credit institutions. At the end of the year, the balance sheet totalled €198 billion, compared with €219 billion at the end of 2021.