Transmission Protection Instrument Details

A few key points on the ECB's new Transmission Protection Instrument (TPI), from the central bank's press release this afternoon:

• The TPI is an addition to the ECB's toolkit, but flexible PEPP reinvestment will remain the first line of defence against fragmentation, and the ECB retains the discretion to use OMT.
• TPI eligibility will be based on "dynamically adjusted" criteria, including 1) compliance with the EU fiscal framework etc; 2) absence of severe macroeconomic imbalances; 3) fiscal sustainability; and 4) sound and sustainable macroeconomic policies.
• Purchases will be focused on public sector securities with remaining maturity of 1-10 years. Private sector securities "could be considered, if appropriate".
• The scale of TPI purchases is not restricted ex-ante. But purchases will be conducted so that they cause "no persistent impact on the overall Eurosystem balance sheet and hence on the monetary policy stance".
• The Governing Council will activate TPI based on a "comprehensive assessment of market and transmission indicators, an evaluation of the eligibility criteria and a judgement that the activation of purchases under the TPI is proportionate to the achievement of the ECB’s primary objective."
• Purchases would end either "upon a durable improvement in transmission, or based on an assessment that persistent tensions are due to country fundamentals."