The institution will apply flexibility to the reinvestment of bonds from the emergency program that it launched during the pandemic (the so-called PEPP), announced after an exceptional meeting of its Governing Council, and will also give instructions to design a new instrument to combat the excessive difference in rates of interest between the northern and southern countries of the eurozone.
The extraordinary meeting comes hours before the US Federal Reserve (Fed) announces its monetary policy decision, which is expected to make one of the most aggressive rate hikes since 1994.
Last week the ECB announced that a cycle of raising interest rates to combat inflation would begin in July and that a new series of interest rate hikes would start in September.
This important change in monetary policy is accompanied by the risk of fragmentation of the Eurozone sovereign debt market, which would cause European States to borrow at very different levels, penalizing those considered more fragile.
The reaction in the bond market was immediate and the yields of the Italian debt began to rise, increasing the “spread” (differential) with the German Bund at 10 years, the rate that serves as a reference.
ECB officials have already insisted they are ready to intervene urgently if the risk of sovereign debt market fragmentation increases, but many observers lamented the institution’s lack of a concrete solution.
“We will not tolerate changes in financing conditions that go beyond fundamental factors” in eurozone countries that would cause their borrowing costs to skyrocket, ECB board member Isabel Schnabel said in a speech on Tuesday. at night in Paris.
“There is no doubt that, when necessary, we can and will deploy new instruments to guarantee the transmission of monetary policy and, therefore, our fundamental mandate which is to guarantee price stability,” he added.
With information from AFP and Reuters
