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Lagarde: Might Hike At Several More Meetings; TLTRO Shift Explained

ECB

Q: Are we looking at several more rate increases?

  • A: We have made progress on normalisation, but we have ground to cover. Since we have made this progress, the ultimate destination is the rate that will deliver the 2% inflation target in the medium term. This may not be the rate at which we believe the normalisation is completed. It may have to go beyond that.
  • We are going to decide meeting-by-meeting. It might well be several meetings. We know the path, the journey and the destination.
Q: It is not clear what you have done with respect to TLTROs. What will the numbers look like?
  • A: We took the TLTRO decision for monetary policy reasons. When we modified the terms of TTLRO-III during the pandemic, we made that decision for monetary policy reasons to incentivise banks to lend.
  • We have been surprised by the unprecedented rise in inflation in a very short space of time, which called for a change of our monetary policy stance.
  • We also need the best possible transmission, which is why we are changing the interest rate which will apply as of November. We want to make sure there is no deterrent to the transmission of monetary policy by banks.
  • The decision will also reduce the size of the overall eurosystem balance sheet. It will also increase the pool of collateral that will be available going forward which is important given the current scarcity of collateral.
  • Looking out to November 23 (given time to prepare) we are raising the special interest rate. It will be the DFR. We are also opening three additional windows to repay TLTROs if they wish.
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