The European Central Bank decided to raise interest rates more than previously announced. This means that the ECB seriously takes into account the problem of inflation, but at the same time decides to introduce a tool aimed at counteracting undesirable movements in bond spreads.
The ECB points out that it wants to cut inflation to 2%. Price pressure triggered higher rate hikes. The ECB indicates that the new instrument will allow for a better transmission of the price stabilization target. The scale of asset purchases under the TPI program will depend on the scale of undesirable market movements. In addition, PEPP will be reinvested at least until 2024 (previously the ECB indicated that it would be flexible here, which gives an additional opportunity to control yield spreads). Details of TPI will be announced at 2:45 pm BST.
Further decisions by the ECB will depend on the data. Currently, the market is pricing in a 60bp rate hike in September.
Bond spreads fell after today's ECB decision. The euro is also gaining. Source: Bloomberg
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