Bank raises interest rates by 50 basis points, approving Transmission Protection Instrument
The European Central Bank (ECB) on Thursday hiked rates for the first time in over a decade after eurozone inflation hit its highest level on record.
Euro area annual inflation spiked to 8.6% in June, far above the ECB’s 2% inflation target.
The bank’s Governing Council decided to raise the three key rates larger than expected by 50 basis points and approved the Transmission Protection Instrument (TPI).
It is appropriate to take a larger first step on its policy rate normalization path than signaled at its previous meeting, the bank said in a statement.
“Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 0.50%, 0.75% and 0.00% respectively, with effect from 27 July 2022.”
It also said in upcoming meetings, further normalization of interest rates will be appropriate.
Through the TPI, the bank underlined it will back up the effective transmission of monetary policy. “The TPI will ensure that the monetary policy stance is transmitted smoothly across all euro area countries.”
The bank aims to tackle “anti-fragmentation”via this new tool to restrain the risk of eurozone fragmentation.