The European Central Bank announced a rate hike for the first time in 11 years and introduced a new policy tool on Thursday to limit the difference in borrowing costs among the 19 member states of the euro area.
Italy’s sharp rise in borrowing costs in recent months focuses on whether bond market movements are orderly and in line with the country’s economic fundamentals, or are they chaotic and threatening the effectiveness of monetary policy. I was guessing.
This new tool Transmission protection equipmentAims to thwart chaotic movements in the government bond market. In short, the new tool will allow the ECB to buy bonds in countries that it believes are experiencing unreasonable deterioration in funding terms. According to banks, the size of bond purchases depends on the severity of the risks involved and is not limited. Buy public debt that matures in 1 to 10 years.
Banks said the policy tool was part of the reason it was able to raise interest rates more than expected on Thursday to ensure smooth communication of policy objectives.
However, it is hoped that the announcement of tools alone will calm the bond market and eliminate the need to use it, as was the case with previous policy instruments announced during the 2012 European Debt Crisis.
“We are rather convinced that we don’t want to use it,” said ECB President Christine Lagarde. “But if you have to use it, we don’t hesitate.”
The decision on whether to use this tool will be made by a 25-member board of directors consisting of 19 central bank heads in the euro area and a 6-member board, but the specifics that will trigger its revitalization. Details have not been disclosed. Every country benefits from policy tools such as a sustainable trajectory of public debt and a “healthy and sustainable” economic policy based on the plans used to access the European Union’s Resilience and Resilience Fund. Must meet certain criteria in order to.
Claus Vistesen, an economist at Pantheon Macroeconomics, said in a note to clients that “there is plenty of room for Italy” or that other Southern European economies such as Greece, Spain and Portugal may not meet eligibility criteria. I am. “The key question is how rigorous these standards will be.”
He added that banks would roughly interpret the standard, “as time goes on, we are encouraged.”
