Lhe European Central Bank held an exceptional meeting on Wednesday June 15, a week after announcing a tightening of its monetary policy to combat inflation which has been accompanied by a widening gap in borrowing costs between the States of the eurozone. Last week, the ECB announced its intention to begin a cycle of key rate hikes in July to fight inflation. The institution will raise, at its next meeting on July 21, its key rates by 25 basis points, after having stopped its net purchases of assets. But its president, Christine Lagarde, also warned that there would be a new series of rate hikes from September, the amount of which worries investors.

At the end of this new meeting, the European Central Bank promised to show “flexibility” in its monetary policy to calm the tensions recently appeared on Italy’s borrowing rates, in particular, while the pandemic has ” left lasting vulnerabilities” in the euro area.

A new “anti-fragmentation” instrument

The institution “will apply a certain flexibility in the reinvestment” of the bonds held under its emergency program launched during the pandemic (PEPP), it announced after an exceptional meeting of its board of directors. governors. The ECB has also instructed its teams to “accelerate” the design of a new “anti-fragmentation” instrument to fight against too wide a spread in rates between northern and southern countries of the euro zone. No details on the content of this instrument or its timetable for adoption have been given.

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The institution will give itself flexibility in the management of the stock of debt held under the “PEPP”, this huge debt buyback program operated from March 2020 to last March in the midst of a pandemic, i.e. an amount of approximately 1,800 Billions of Euro’s. It is important for the ECB to “preserve the functioning of the monetary policy transmission mechanism”, which is seized up when the countries of the euro zone borrow on conditions that are too different. The ultimate objective is to bring inflation back to the desired level of 2%, while the aggregate peaked at more than 8% in May in the euro zone.

With this communication, the ECB said “what the markets needed to hear, finally! tweeted Frederik Ducrozet, Chief Economist at Pictet Weath Management. The institute also met on the eve of a meeting of economy and finance ministers of the euro zone (Eurogroup) in Luxembourg.

The ECB, which is taking part in this meeting, will have to “ensure that this future (anti-fragmentation) tool will benefit from the maximum necessary political and legal support”, commented Stanislas Jourdan, from Positive Money Europe.

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Before the meeting, Bruno Le Maire had indicated that the normalization of European monetary policy should “be done gradually and in advance”. “We don’t want brutality, we don’t want a decision that could take economic players by surprise and which, ultimately, would create more economic difficulties than anything else,” insisted the minister, who was speaking on the sidelines of the Vivatech show in Paris.

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