As eurozone inflation soars towards 10 percent, the European Central Bank on Thursday again raised interest rates aggressively to try and bring rising prices under control.
In this file photo taken on March 10, 2022 the headquarters of the European Central Bank is pictured. – European Central Bank policymakers meet on April 14, 2022 faced with the challenge of threading a response between record-high inflation figures and weak growth due to the war in Ukraine.
The policy of quantitative easing initiated in 2015 and the pandemic emergency purchase programme — or “PEPP” — involved the wholesale purchase of government and private debt on the secondary market. The ECB hoovered up five trillion euros in debt over the past 10 years and has a stock of around two trillion euros in TLTRO loans in its portfolio, bringing its total balance sheet to around 8.8 trillion euros.The longer the ECB continues to roll over the debt on its balance sheet by purchasing new assets, the longer it keeps the expansionary monetary policy of the last 10 years going.
This so-called quantitative tightening would represent the next step in the “normalisation” of the ECB’s policy and “underscore our commitment to ensuring that inflation returns to the medium-term target of two percent”, according to German central bank president Joachim Nagel.ECB President Christine Lagarde said in late September that the best tool to fight inflation was still interest rates, which rose by another 75 basis points on Thursday.
Banks, meanwhile, have been making steady profits by parking the cash with the ECB at new higher interest rates which sit above the interest to be paid on the TLTRO loans.