The European Central Bank raised the deposit rate to zero and signaled that further increases would be appropriate in the upcoming meetings.
The ECB decided to raise three base interest rates by 50 basis points and approved the Transmission Protection Instrument (TPI). The TPI will be an addition to the Governing Council’s toolkit and can be activated to counter the unwarranted, erratic market dynamics that pose a serious threat to the transmission of monetary policy across the Eurozone.
Further normalization of interest rates would be appropriate at future meetings of the Governing Council.
The ECB will support the return of inflation to the target.
The ECB is ready to tune all instruments.
The Governing Council’s future policy rate path will remain data-dependent and will help achieve the 2% inflation target in the medium term.
The front-loading of exits from negative interest rates today allows the Governing Council to take a call approach to interest rate decisions.
The European Central Bank has announced its new crisis management tool. Obviously, it is understood that the bond purchase program under the TPI is in the perspective of balancing the effect of the 50 bps interest rate increase. This perspective is based on a very rational plan: The probability of the economy going into recession is increasing and as long as inflation increases, the coefficient of increase in interest rates will also be affected. The existence of the ECB as a buyer who still does not have price and rate priority in the bond market is important in order not to cause a liquidity problem due to the financial conditions created by rate hikes.
A hawkish message on monetary tightening despite economic and geopolitical challenges has the potential to put further upward pressure on sovereign bond yields. With the collapse of the Draghi government, there is a regional economy that has been caught on weak economic fundamentals by political risk. European bonds are no longer as reliable as they used to be, and this also applies to German bonds. Because the energy dependence and the Russian occupation carried the event to a multidimensional uncertainty. The TPI will control the spreads and aim to balance the asymmetry, mainly the Italian-German spread.
Kaynak: Çin Uluslararası Radyosu
Hibya Haber Ajansı