Markets and investors are all waiting for the next decision Bce sui interest rates: Is an increase still possible or will we opt for a further break in December?
The bets reveal that the maximum level of the cost of money has actually been reached and, given the forecasts of economic weakness in the Eurozoneanother aggressive move is rated risky.
In the meantime, however, signals are arriving on another relevant topic, that of reduction of the ECB budget. Specifically, the December meeting could be decisive in understanding how to proceed with the repurchase of the bonds of the single currency states.
In essence, the greatest attention is paid to the so-called Quantitative Tightening, the central bank’s strategy to limit liquidity through the end of the extraordinary debt purchase program. In this way, countries that need to raise cash through debt offerings, such asItalia, are forced to find buyers other than the ECB. With the risk of an upheaval of the bond market.
Is the ECB about to reduce its balance sheet? Because this move is risky
ECB officials may soon review theirs portfolio of bonds purchased in an extraordinary way with the program created during the pandemic and worth 1,700 billion euros. Specifically, the time frame for continuing to replace expiring securities could be revised.
Christine Lagardespeaking to lawmakers in the European Parliament, said:
“We have indicated that we will continue to reinvest [i bond in scadenza] at least until 2024. This is an issue that is likely to be discussed and considered within the Governing Council in the not too distant future, and we will possibly revisit this proposal.”
Under current guidance, reinvestments – or buybacks of bonds that have matured – are expected to continue until the end of next year. Crucially, they can be implemented flexibly to counteract any fragmentation of the bond market dell’area euro.
Many of the ECB’s most hawkish members have called for an end to these reinvestments, saying they represent monetary stimulus, inconsistent with efforts to tame inflation by raising rates. They also point out that the pandemic crisis that initially justified the purchases is clearly over.
The ECB stopped most of its bond purchases last year. However, it is still reinvesting proceeds from maturing securities in the €1.7 trillion portfolio and has agreed to continue doing so until at least the end of next year.
The tool is still considered valid and useful by the more accommodating members, who fear turbulence if the ECB stops purchasing bonds completely. The context, in fact, is not rosy and investors are increasingly nervous about it stagnant growth and the elevated debt levels in many European countries, such as Italy.
Our nation, for example, remains under special scrutiny for its level of debt. The challenge is to continue to finance itself through the offering of bonds in a market that will see less and less participation – and safe purchases – from the ECB.
The central bank’s December meeting will also be crucial for this issue. An announcement from reduction in reinvestments of the PEPP program or even a drastic end to the Eurotower’s bond purchases, could cause a small earthquake.
2023-11-28 10:00:00
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