Historic double move from ECB: in the last meeting of the Governing Council, the Frankfurt institute raised i interest rates for the first time after 11 years (+0,50%) and, at the same time, announced the creation of a new one anti-spread shield.
Let's start with the second novelty: the official name of the shield is Tpi, which stands for “Transmission protection instrument”. The objective, specifies the ECB, is to ensure that "the monetary policy stance is transmitted in an orderly manner in all the countries of the euro area", a necessary prerequisite for the Eurotower "to be able to fulfill the mandate of maintaining price stability".
Anti-spread shield: no pre-established purchase limits
The ICC will be "activable to counter unjustified, disorderly market dynamics that seriously jeopardize the transmission of monetary policy - he continues the note from the central institute - The extent of the TPI purchases will depend on the severity of the risks for the transmission of monetary policy. Purchases they are not subject to ex ante restrictions".
However, the ECB specifies that the "flexibility" in reinvesting the principal repaid on maturing securities acquired with the PEPP (the now completed pandemic emergency purchase program) remains "the first line of defense in order to counter the risks for the pandemic-related transmission mechanism.
The ECB raises all rates by 0,5%
As regards the interest rates, the hawks prevailed. For months there was talk of the possibility of a 25 basis point hike, but in the end the Governing Council opted for twice as decisive an intervention against inflation, raising all rates by 0,5%. The main rate thus rises to 0,50%, the deposit rate to zero and the marginal lending rate at 0,75%. The season of negative rates therefore ends at least two months ahead of market expectations.
The Governing Council, observes the Eurotower, “has deemed it appropriate to adopt a larger initial intervention in the normalization of reference rates compared to what was reported at the previous meeting. This decision is based on the Governing Council's updated assessment of inflation risks and the ITT's increased support for effective monetary policy transmission. This will support the return of inflation towards the Governing Council's medium-term objective by strengthening the anchoring of inflation expectations and ensuring that demand conditions adjust in line with the achievement of the medium-term inflation objective”.
And that's not all: "In the next meetings of the Governing Council", says the ECB, "a further normalization of the interest rates”, which therefore they will rise again.
Now the risk is that monetary tightening will accelerate or worsen the new recession which will in all likelihood hit the eurozone in the coming months.
The comeback of the euro and the European stock exchanges
The news from Frankfurt triggered a comeback of the euro on the dollar: the single currency gains 0,6% and changes hands at 1,0241 on the greenback. European currency also showing strong recovery against the yen: +1%, to 142,08.
Even the European Stock Exchanges all improve after the announcements of the Central Bank. Milano halves the decline to 0,74%, while Frankfurt yields 0,35%. Paris passes in positive (+0,37%), as well as Madrid (+0,7%). Outside the Eurozone, London -0,1%.
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