The European Central Bank raised its key interest rate by 50 basis points, the first increase in 11 years and the biggest since 2000 as it confronts surging inflation even as recession risks mount.
With Italy enduring a fresh bout of political turmoil, President Christine Lagarde and colleagues also unveiled a tool they hope will ensure markets don’t push up borrowing costs too aggressively in vulnerable economies, as happened in 2012 when the euro’s very existence was questioned.
As those steps are implemented, it said it will establish the Transmission Protection Instrument, which “can be activated to counter unwarranted, disorderly market dynamics.” Purchases aren’t restricted “ex ante.” The ECB joins 80 international peers, including the US Federal Reserve, in lifting rates this year to fight red-hot inflation after months of predicting such pressures would fade. Consumer prices in the euro area are now rising by more than four times its 2 per cent target.
But as that happened, euro-area political risks came to the fore with the resignation of Italian Prime Minister Mario Draghi, Lagarde’s predecessor.
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