Policy (key) rate
The European Central Bank's (ECB) key policy rates are the interest rates set by the Governing Council to steer the refinancing conditions of commercial banks across the eurozone. They comprise three rates: the deposit facility rate, the main refinancing operations rate (MRO), and the marginal lending facility rate. The deposit facility rate has become the primary monetary-policy signal since 2022.
Key points
- Three policy rates: deposit facility rate, main refinancing operations rate (MRO), and marginal lending facility rate.
- Set at Governing Council monetary-policy meetings (generally 8 per year).
- The deposit facility rate is now the main compass: it directly influences Euribor and French government bond yields (OATs).
- A rate hike feeds through to fixed mortgage rates within a few weeks.
- The ECB does not directly set lending rates, but its decisions create the rate environment in which banks operate.
Frequently asked questions
How does an ECB policy rate decision affect my mortgage rate?
The transmission is not instantaneous but it is mechanical. An increase in the ECB deposit rate pushes Euribor rates up, raising banks' refinancing costs. Banks pass this extra cost on to new loan offers, typically within two to six weeks. Loans already granted at fixed rates are not affected.
Why has the deposit facility rate become more important than the MRO rate?
Since 2014, eurozone banks have held large excess reserves at the ECB. The deposit facility rate — which remunerates (or penalizes) those reserves — has therefore become the reference opportunity cost for the entire banking system. The MRO rate, used for weekly repo operations, has lost relative operational importance.
Why aren't policy rates cut immediately whenever the economy slows down?
The ECB's primary mandate is price stability (a 2% inflation target over the medium term). During periods of high inflation, cutting rates would worsen price rises even if it relieved borrowers. The ECB must balance growth, employment, and inflation, which explains why rate adjustments lag behind economic developments.
In practice
In July 2022 the ECB raised its policy rates for the first time in eleven years. Within eight weeks, average 20-year fixed mortgage rates at most French banks moved from 1.5% to 2.3%. A broker who had finalized an offer just before the decision saved the client thousands of euros compared with offers issued afterward.
Official sources
- Key ECB interest rates · Banque centrale européenne
- The annual percentage rate (APRC) · Service-Public.gouv.fr
- Mortgage credit (official guide) · Service-Public.gouv.fr