The European Central Bank is raising interest rates by 0,5 percentage points to curb inflation, while trying to control the sovereign debt problem.
The European Central Bank (ECB) follows in the footsteps of the Federal Reserve and other central banks and will raise interest rates, in an attempt to fight inflation. The central bank will raise 50 basis points (0,5 percentage points) interest rates, something that has not happened since June 2000.
Other central banks, such as the United States Federal Reserve has increased in 75 basis points for the price of the dollar and is expected to do so again. On the other hand, the Central Bank of Canada has raised the official rate by 100 basis points. In this sense, the European body stands out for being more cautious and less aggressive in this type of monetary policies.
The body has also announced the creation of a mechanism with no limit on resources to prevent this decision and the normalization of monetary policy from having a negative impact. negative impact on risk premiums and cause a fragmentation of the eurozone.
With these measures, the ECB seeks to ensure that the inflation returns to 2% in the medium term (expected by 2024) and avoid the most pessimistic forecasts, such as that of Goldman Sachs, which believes it will reach 10% by September. At the same time, this measure has allowed The euro is once again trading above the dollar.
This is what the European Central Bank's Monetary Policy Transmission Protection will look like
Along with the announcement of the interest rate hike, the ECB has also announced the Monetary Policy Transmission Protection (MPTP), a market intervention mechanism that the organization believes is necessary to ensure effective transmission of monetary policy.
The TPI may be activated to counteracting disorderly and unjustified market dynamics that poses any serious threat to the eurozone. This tool will only be activated as a last resort and the scale of the purchases will depend on the severity of the risks posed to the European Union.
This tool aims to Preventing the fragmentation of the EurozoneIn this way, TPI will allow financial institutions to intervene in the markets when they find a large, unjustified difference between risk premiums, which would cause some countries to have cheaper credit than others.
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