Eurozone inflation hit 8.6% in June, ECB President Christine Lagarde said in a news conference Thursday.
Summarizing the governing council's risk assessment for the eurozone, Ms. Lagarde said: "Inflation continues to be undesirably high and is expected to remain above our target for some time. The latest data indicates a slowdown in growth, clouding the outlook for the second half of 2022 and beyond. At the same time, this slowdown is being cushioned by a number of supportive factors."
She also said a "prolongation of the war in Ukraine remains a source of significant downside risk to growth, especially if energy supplies from Russia were to be disrupted to such an extent that it led to rationing for firms and households. The war may also further dampen confidence and aggravate supply-side constraints, while energy and food costs could remain persistently higher than expected. A faster deceleration in global growth would also pose a risk to the euro area outlook," she said.
The ECB also unveiled its Transmission Protection Instrument, an addition to its "toolkit" that will ensure its monetary policy stance is transmitted smoothly across all eurozone countries, Ms. Lagarde said.
The TPI "can be activated to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across the euro area," the news release said. "The scale of TPI purchases depends on the severity of the risks facing policy transmission."
Under the TPI, the eurosystem can make secondary market purchases of securities issued in markets that are "experiencing a deterioration in financing conditions not warranted by country-specific fundamentals," a separate news release on the TPI said. The aim is to counter risks to the transmission of the ECB's monetary policy into the eurozone states. The scale of purchases under the TPI would depend on how severe the those risks are.
The euro was up 0.2% against the dollar in the hours after the decision was unveiled, to $1.02, after initially advancing by about 1%.
Money managers said they expect further hikes to interest rates through the end of the year, while warning the ECB must also navigate a number of market stresses, such as indebtedness in several countries and political uncertainty in Italy following the resignation of Prime Minister Mario Draghi.