ECB’s Schnabel: ‘Steep Hiking Cycle Would Not Have Been Possible’ Without TPI

30 August 2024

By Isabel Teles and David Barwick – TALLINN (Econostream) – The European Central Bank would have had a much harder time hiking interest rates without the transmission protection instrument (TPI) decided in the run-up to the start of policy tightening, Executive Board member Isabel Schnabel said Friday.

During a panel discussion at Eesti Pank, Schnabel said that she fully shared the ‘assessment that overall the transmission has been very smooth, and I would say that was slightly surprising that it went so smoothly given the steepness of the hiking cycle.’

The ECB had had ‘quite a few concerns at the time’, she recalled. These were warranted, she said, pointing to examples of market turbulence.

‘And we have to remember we were coming out of a very long period of extremely low interest rates, then we had this very fast hiking cycle, that nobody had expected -- including us’, she continued. ‘So nobody was really well prepared for that.’

There had been a ‘general expectation that interest rates would stay low for a very, very, very long time, and then the opposite of that happened’, she said.

‘And I think it was very right that we were concerned about this shift’, she said. ‘I mean, because we were concerned we introduced a new instrument, the transmission protection instrument. I continue to believe that without that instrument this steep hiking cycle would not have been possible. And I think it's a very well-designed tool that also aims to deal with issues like more hazard and so on, but I think it is an important addition to our toolkit.’