On 21 July 2022, the ECB Governing Council approved the establishment of a transmission protection instrument (TPI). The TPI is intended to support the effective transmission of monetary policy and ensure that the monetary policy stance is transmitted smoothly across all euro area countries. The singleness of monetary policy is a precondition for the Eurosystem to be able to deliver on its primary mandate, which is price stability.

The TPI will be an addition to the Eurosystem’s toolkit and can be activated to counter unwarranted, disorderly market developments if these pose a serious threat to the smooth transmission of monetary policy across the euro area. In such a case, the Eurosystem could purchase securities from individual countries in order to combat deteriorations in financing conditions not warranted by country-specific fundamentals. These purchases would be made on the secondary market and would focus on public sector bonds. Purchases of private sector securities could be considered, if appropriate. The scale of TPI purchases would depend on the severity of the risks facing monetary policy transmission. Purchases are not restricted ex ante.

In order for securities to be eligible for purchase under the TPI, certain criteria must be fulfilled. The remaining maturity of the securities must be between one and ten years. The jurisdictions in which the Eurosystem may conduct purchases under the TPI must pursue sound and sustainable fiscal and macroeconomic policies. A detailed list of the four cumulative criteria is provided in the press release linked below.

Activation of the TPI will be based on a comprehensive assessment of certain market and transmission indicators, an evaluation of the aforementioned eligibility criteria, and a judgement that the activation of purchases under the TPI is proportionate to the achievement of the Eurosystem’s primary objective. Purchases will be terminated either if a durable improvement in transmission becomes apparent or if the ECB Governing Council assesses that market tensions are due to country fundamentals.

The Governing Council will take appropriate measures to prevent purchases under the TPI from having a persistent impact on the overall Eurosystem balance sheet or the volume of excess liquidity and hence on the Eurosystem’s monetary policy stance.

Pandemic emergency purchase programme (PEPP) reinvestment flexibility will continue to be the first line of defence to counter pandemic-related risks to the transmission mechanism.