Published on Monday, July 25, 2022

Europe | ECB in positive

The European Central Bank (ECB) has finally emerged from the extraordinary situation it has been in since 2014 with interest rates in negative territory, after raising all three benchmark rates by 50 basis points, thus leaving the refinancing rate (again the monetary policy benchmark) at 0.50%.

Key points

  • Key points:
  • This increase is above the 25 basis points announced in June, although, in the days prior to the meeting, rumors had already circulated that the ECB was going to accelerate the planned pace of hikes.
  • At the same time, a new monetary policy instrument, the TPI (Transmission Protection Instrument), was announced, as expected, to control unnecessary and disorderly tensions in the debt markets, once the bond purchase programs had ended.
  • In doing so, the monetary authority has sent out a couple of important messages. The first one is that, for the time being, it remains more concerned about inflation risks than the economic slowdown that is already underway.
  • The second one is that the two measures are interrelated, and are possibly the result of a pact between the different tendencies in the Governing Council: In exchange for accelerating the pace in interest rates, we approved the new measure and did so unanimously.
  • The most novel aspect of the meeting, however, is the characteristics of the new TPI instrument. The ECB will buy public assets and the door is opened to acquire other private assets; the funds available will be unlimited, and the conditionality applied will be similar to that of other European controls.

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