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European Central Bank (ECB) Tools and Mechanisms - Acronyms


Finance is full of jargon. The European Central Bank meeting today was full of them. So here are a few need-to-know terms for any newbies.

 

Source: AMPLIYME



TPI (Transmission Protection Instrument). Fresh out the toolbox today! Aimed at limiting divergence in borrowing costs between the bloc’s strongest and weakest countries. Think Germany against Italy.

OMT (Outright Monetary Transactions). Kinda like TPI's big brother. Designed at the height of the euro zone’s debt crisis, OMT scheme would allow the ECB to make unlimited purchases of a particular country’s debt. Was actually never used, but in combo with Mario Draghi's famous "whatever it takes" it helped turn investor confidence in 2012 when the Eurozone was at risk of imploding!

PEPP (Pandemic Emergency Purchase Programme). A temporary asset purchase programme of private and public sector securities. Was created in reaction to the pandemic and sits on top of APP.

APP (Asset Purchase Programme). Created in 2014, asset purchases can provide a stimulus to an economy if the traditional monetary policy measures (i.e. interest rates) of a central bank are not working.

TLTRO (Targeted longer-term refinancing operations). ECB offers longer-term loans to banks at favourable costs and encourages them to lend to businesses and consumers in the euro area. Hence a negative 'deposit' rate until today to force banks to lend rather than hoard cash.

The list goes on CSPP. PSPP, ABSPP, CBPP3... but hopefully the above is enough to keep the interviewer at bay!

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