In front of the blaze of the‘inflationthe European Central Bank confirms that in the fall it will stop buy government bonds of the countries of the Eurozone. However, in doing so, a parachute which was providential for the states most exposed to the moods of the markets such as Italy burdened by a debt around 150% of the gdp. Soon after he could raise the rates. Result: after the meeting of the board ofEurotower and the president’s press conference, Christine Lagardethe yield on Italian BTPs surged to 2.49%, up 11 basis points, and the spread it widened to 165 basis points. Italian government bonds are the ones that are losing the most ground in Europe. Little did that Lagarde, careful not to repeat the slip of March 2020, has ensured that in the face of any widening of the differentials “the principle we will apply is the flexibility“(Of bond purchases),” two years ago this was necessary and we moved quickly. We will do exactly the same, we will move promptly“.
The Council of the Bce in the press release after the board meeting echoed the “whatever it takes” of Mario Draghi applying it to the price level: the board will “undertake any necessary action“-” whatever action is needed “-” to fulfill the mandate to pursue the price stability and to help preserve financial stability ”. The path is marked: purchases of government bonds “will be equal to 40 billion euros in April, 30 billion euros a May and 20 billion euros in June“, Writes the board, and“ they should end in the third quarter. The calibration of net purchases for the third quarter will be driven by data and will reflect the evolution of the Governing Council’s assessment of the outlook ”. The final decision on the stop will be made in the June meeting. ‘Some time later’ will come close with the rate hike. The time has not yet been quantified but as Lagarde explained “it can be in a week or several months”.
“From the press release and from Lagarde’s words, a sort of time catch emerged and referral of the decisions in June “, comments Antonio Cesarano, Chief Global Strategist of Intermonte,” conceding to the presumed greater pressure of the hawks (after the marked rise in inflation) that the arguments in favor of a stop in Qe in the third quarter still become stronger “. Lagarde, Cesarano observes, “gave ‘a blow to the barrel and one to the circle’, emphasizing both the upside risk for inflation and the downside risk for growth, underlining how the latest lending survey conducted among the banks in the area the intention to apply more restrictive credit standards in the coming months has emerged ”.
The landscape in which this will happen is bleak. The war in Ukraine “Is already weighing on trust of businesses and consumers, also through the uncertainty that it brings “with it and” has created new ones bottlenecks“Explained Lagarde. And, after registering “a 0.3% increase in the fourth quarter by 2021, growth is estimated weak in the first quarter largely due to the restrictions linked to the pandemic, several factors indicate slow growth also in the subsequent period “. The slowdown goes hand in hand with the flare-up in prices: in the Eurozone and beyond “inflation has increased significantly and will remain high in the coming months, mainly due to the sharp increase in energy costs ”, writes the ECB – which until last year instead he considered it a phenomenon transient – in the concluding statement of the periodic meeting of the Board of Directors, in which it is emphasized that “inflationary pressures have intensified in many sectors “. In the future, monetary policy choices will be tied to “incoming data and the evolution of assessment of perspectives“, Always with a view to taking“ all necessary measures to fulfill the ECB’s mandate to pursue price stability ”.
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