MNI BRIEF: ECB TLTRO Term Changes To Aid Inflation Fight

The European Central Bank will recalibrate conditions of its 'third' targeted longer-term refinancing operations (TLTRO III) as it pushes to restore price stability over the medium term, it said in a statement Thursday. a move signalled by MNI in a recent Sources story (MNI SOURCES: ECB Seen Changing TLTRO Terms)

"In view of the current inflationary developments and outlook, it is necessary to adapt certain parameters of TLTRO III to reinforce the transmission of our policy rates to bank lending conditions so that TLTRO III contributes to the transmission of the monetary policy stance needed to ensure the timely return of inflation to the ECB’s 2% medium-term target," the ECB said in a statement following a press conference by President Christine Lagarde.

The recalibration of the TLTRO III terms and conditions, from November 23, will contribute to the normalisation of bank funding costs, helping exert downward pressure on inflation, currently at 9.9% in the euro area, contributing to restoring price stability over the medium term. The recalibration also removes deterrents to early voluntary repayment of outstanding TLTRO III funds, further contributing to the overall monetary policy normalisation.

Earlier Thursday, the ECB increased rates across its three main policy instruments, leaving the deposit rate 75 bps higher at 1.5%. Market pricing of future ECB hikes declined in the wake of the meeting, as comments by Lagarde were read as slightly less hawkish than previously.