ECB Raises Rates 50 Basis Points

The European Central Bank after much debate finally announced a 50 basis point hike, the largest such hike in 11 years…(ECB)

Today, in line with the Governing Council’s strong commitment to its price stability mandate, the Governing Council took further key steps to make sure inflation returns to its 2% target over the medium term. The Governing Council decided to raise the three key ECB interest rates by 50 basis points and approved the Transmission Protection Instrument (TPI).

In their release, the ECB explained that this larger than expected will allow them more flexibility going forward…

The frontloading today of the exit from negative interest rates allows the Governing Council to make a transition to a meeting-by-meeting approach to interest rate decisions. The Governing Council’s future policy rate path will continue to be data-dependent and will help to deliver on its 2% inflation target over the medium term.

The ECB is also unveiled the Transmission Protection Instrument which is a bond purchase program that will help more indebted euro zone countries and preventing financial fragmentation within the currency bloc…

The TPI will be an addition to the Governing Council’s toolkit and can be activated to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across the euro area. The scale of TPI purchases depends on the severity of the risks facing policy transmission. Purchases are not restricted ex ante. By safeguarding the transmission mechanism, the TPI will allow the Governing Council to more effectively deliver on its price stability mandate.

The ECB plans to detail more about the TPI program in a separate release.