The European Central Bank Raised Interest Rates
July 21, 2022 (EIRNS)—The ECB Governing Council met and decided to raise interest rates by 0.50 point today. At the same time, the ECB approved a new tool, the Transmission Protection Instrument (TPI), which is aimed at intervening on the market to prevent the spread between core and periphery yields from growing too wide.
While the half-point rate increase won’t stop commodity-driven inflation, the TPI safety net will be activated if the candidate country fulfills several conditions: complying with EU balance criteria; absence of serious macroeconomic imbalances; debt sustainability and budget policies in harmony with recovery obligations and EU Commission recommendations. The TPI will buy only government bonds, for now, and before its activation, the ECB will make use of pan-European personal pension product (PEPP) reinvestment.
The TPI is seen as a hand stretched out to Italy; however, the spread increased after the ECB press conference. That is because doubts are cast on whether Italy will either fulfill the harsh conditions attached or decide to humiliate itself by submitting to a “Greek” treatment.