Governing Council discusses current market situation at special meeting

The Governing Council of the European Central Bank (ECB) is holding a special meeting this Wednesday.

“The Governing Council of the ECB will meet on Wednesday for an ad hoc meeting to discuss the current market situation,” said a spokeswoman for the central bank in Frankfurt on request. She confirmed the corresponding media reports. The euro rose to an intraday high of $1.0493 after the meeting was announced.

In the past few days, interest rates on the capital markets had risen sharply, while sentiment on the stock markets had deteriorated significantly. Analysts cited the US Federal Reserve’s tighter monetary policy as the main reason, but also the prospect of interest rate hikes by the ECB.

At its most recent regular meeting last Thursday, the Governing Council decided, after much hesitation, to exit its ultra-loose monetary policy for years in view of the record high inflation: the multi-billion dollar bond purchases will end on July 1st. At the next regular meeting of the ECB Council on July 21, the central bank intends to raise key interest rates for the first time in eleven years, initially by 0.25 percentage points each time.

Interest rates rise

Capital market interest rates in southern European countries have risen particularly sharply in the past few days. In Italy, the interest rate for ten-year government bonds is back above the four percent mark. At the end of March, interest rates were only half as high. One reason for this development is the ECB’s announcement that it would stop buying new government bonds at the beginning of July.

ECB Executive Board member Isabell Schnabel made it clear in a speech on Tuesday that the central bank would not accept a disorderly increase in the financing costs of more heavily indebted countries in the euro area. “We will not tolerate any changes in financing conditions that go beyond the fundamental factors and endanger the transmission of monetary policy.”

Schnabel reiterated that the central bank will develop new tools, if necessary, to ensure that its monetary policy achieves the main goal of stable prices with a medium-term inflation rate of two percent. The commitment to the euro is the central bank’s tool against fragmentation in the currency area of ​​the 19 countries, said Schnabel: “This commitment has no limits.”

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