TPI is going to be an addition to our toolkit, and it can be activated to counter unwarranted disorderly market dynamics that pose a serious threat to the transmission of monetary policy across the euro area. Why do we do that? Because we want to make sure that we deliver on our mandate. We want to make sure that our monetary policy stance is transmitted throughout the entire euro area. It's not the only tool that we have in our toolkit.
We have two existing tools already: We have, number one, PEPP, and in particular the flexible reinvestment of redemptions, as we announced back in June, which is now operational. So the flexible reinvestment of PEPP is operational, and it allows us to deal with unwarranted fragmentation risks that are created as a result of pandemic risks. We have OMT, which gives us a tool to deal with unwarranted impairment to transmission that are caused by redenomination risks and that are country-specific. And now we have TPI, that I have just described, in order to counter unwarranted, disorderly market dynamics. So we have the three instruments in the toolbox, and they all can be operated.
As I have said, and I will repeat, TPI is a programme designed for specific circumstances to address specific risks, but that is available to all countries of the euro area. Because our concern is that monetary policy is transmitted throughout the entire area. So when the Governing Council will determine that a country is eligible under the four criteria that I am happy to come back to, if you want, and on the basis of the indicators that there is disorderly market dynamics, then it will decide that that country is eligible to TPI, it will activate TPI, and, as I said earlier on, there is no ex-ante limit to that programme.
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#eudebates the unique initiative aiming to promote debate, dialogue, knowledge, participation and communication among citizens. #ECB #Lagarde #inflation #rates #Economy #Eurozone
The European Central Bank has raised interest rates for the first time in 11 years by a larger-than-expected amount, joining steps already taken by other major central banks across the world to target stubbornly high inflation.
The move, announced on Thursday, raises new questions about whether the rush to make credit more expensive will plunge major economies into recession at the cost of easing prices for people spending more on food, fuel and everything in between.
The ECB’s surprise hike of half a percentage point for the 19 eurozone countries is expected to be followed by another increase in September, possibly of another half a point. The bank's President Christine Lagarde had indicated a quarter-point hike last month.
The bigger hike was justified by an “updated assessment of inflation risks,” the ECB said, and means the bank leaves an era of negative interest rates.
“Economic activity is slowing. Russia’s unjustified aggression towards Ukraine is an ongoing drag on growth," Lagarde said at a news conference following the announcement. “The impact of high inflation on purchasing power, continuous supply constraints and higher uncertainty are having a dampening effect on the economy. Taken together, these factors are significantly clouding the outlook for the second half of 2022 and beyond."
Thursday's decision means the ECB joins the likes of the US Federal Reserve and other major central banks in raising interest rates. The move reflects a rate of inflation that turned out to be higher and more stubborn than first expected, the dubious state of an economy heavily exposed to the war in Ukraine, and a dependence on Russian oil and natural gas.
Recession predictions have increased for later this year and the following year, as soaring electricity, fuel and gas bills deal a blow to businesses and people's purchasing power.
“The economic outlook is worsening by the day," said Carsten Brzeski, chief eurozone economist at ING bank. “At the same time, headline inflation is still increasing and in our view will only come down gradually towards the end of the year, if it comes down at all.
“In hindsight, the very gradual and cautious normalisation process the ECB started at the end of last year has simply been too slow and too late,” he added.
Recession concerns have helped push the euro to a 20-year low against the dollar, which has made the ECB's battle against inflation even harder by worsening already high energy prices. This is because oil is priced in dollars.
Raising rates is seen as the standard cure for excessive inflation, now running at 8.6% in the eurozone in June and largely driven by soaring energy prices. The bank's benchmarks affect how much it costs banks to borrow — and so help determine what they charge to lend.
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