The ECB raises its key rates by 50 basis points in July
The European Central Bank (ECB) announced on Thursday that it had raised its key interest rates by 50 basis points (bp) following the policy meeting in July. Markets expected the bank to raise rates by 25 basis points.
With this decision, 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. , effective July 27, 2022.
The bank also announced that the Board of Governors had approved the new anti-fragmentation tool called “Transmission Protection Instrument (TPI)”.
Follow our live coverage of the market‘s reaction to the ECB’s policy announcements.
Key takeaways from the policy statement via Reuters
“In line with the ECB’s strong commitment to its price stability mandate, the ECB has taken other key steps to ensure that inflation returns to its 2% target over the medium term.”
“The ECB deemed it appropriate to take a larger first step on its path to normalizing policy rates than that signaled at its previous meeting.”
“This decision is based on the ECB’s updated assessment of inflation risks and the enhanced support provided by TPI for an effective transmission of monetary policy.”
“At the next meetings of the ECB, a further normalization of interest rates will be appropriate.”
“Today’s frontloading of the exit from negative interest rates allows the ECB to move to a meeting-by-meeting approach to interest rate decisions.”
“The future path of policy rates will continue to be data driven and help achieve its medium-term inflation target of 2%.”
“The ECB considered that the establishment of the TPI is necessary to support an effective transmission of monetary policy.”
“The TPI will be an addition to the ECB’s toolkit and can be activated to counter unwarranted and disorderly market dynamics that pose a serious threat to the transmission of monetary policy in the euro area.”
“The scale of TPI’s purchases depends on the severity of the risks facing the transmission of the policy.”
“Purchases are not limited ex-ante.”
“By preserving the transmission mechanism, the TPI will allow the ecECB to fulfill its price stability mandate more effectively.”
“In any case, the flexibility of reinvestments of future repayments in the Pandemic Emergency Purchase Program (PEPP) portfolio remains the first line of defense to counter the risks associated with the transmission mechanism linked to the pandemic.”
“TPI’s details are described in a separate press release to be issued at 3:45 p.m. CET.”
With the initial market reaction, EUR/USD gained ground and was last seen up 0.7% on the day at 1.0247.