The ECB jacked up interest rates unexpectedly quickly, the Italian PM quit and bond markets reeled. The prospects of a new eurozone crisis look to be growing.
as Italian prime minister, the European Central Bank jacked up interest rates by an unexpectedly hawkish 0.5 percentage points, and traders sold off Italian bonds.
Mr Mattarella urged the country’s feuding political parties to work with the outgoing government to tackle Italy’s multi-headed crisis, which spans surging inflation and energy prices, slowing growth and soaring public debt.“The time we live in does not allow us to pause in the crucial government action,” he said.
The ECB will buy under-pressure Italian government bonds, to ensure that movements in the sovereign bond markets do not end up giving eurozone monetary policy a different impact in different countries. “The front-loading today of the exit from negative interest rates allows the governing council to make a transition to a meeting-by-meeting approach to interest rate decisions,” the ECB said.The ECB was forced into a larger than expected interest rate increase on Thursday after belatedly accepting that even transitory and externally-driven inflation, caused by surging energy prices and supply-chain issues, could fuel self-fulfilling increases in inflation expectations.
Investors will be worrying that Mr Draghi’s exit portends a return to political instability and policy inaction, in a country where public debt is climbing past 150 per cent of GDP. “Purchases would be terminated either upon a durable improvement in transmission, or based on an assessment that persistent tensions are due to country fundamentals,” the bank said in a statement.
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