The European Central Bank (ECB) decided on Thursday to raise key interest rates by 50 basis points, marking the first rate hike since 2011. 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, the ECB said.
"The frontloading today of the exit from negative interest rates allows the Governing Council to make a transition to a meeting-by-meeting approach to interest rate decisions. The Governing Council’s future policy rate path will continue to be data-dependent and will help to deliver on its 2% inflation target over the medium term," the bank explained.
The ECB also decided to approve the Transmission Protection Instrument (TPI), whose role will be to "ensure that the monetary policy stance is transmitted smoothly across all euro area countries" by countering "unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy." Finally, it will "continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase program for an extended period of time past the date when it starts raising the key ECB interest rates and, in any case, for as long as necessary to maintain ample liquidity conditions and an appropriate monetary policy stance."
