(under writing)
ECB-Day arrives, the day on which Christine Lagarde’s ECB will make the announcement on rates, less than 24 hours after the rate decision communicated by Jerome Powell’s Fed. Economists have no doubts: the ECB will raise rates in the euro area for the eighth consecutive time: the expected rise is 25 basis points. But it will not end here, given that the European central bank, in spite of the latest macro data and the appeals and criticisms that see the Meloni government as the protagonist in Italy, according to economists, should also announce its intention to focus the accelerator on the plan il QT-Quantitative Tightening: not good news for BTPs and for the BTP-Bund spread, in the case of Italy.
Yesterday Jerome Powell’s Fed left rates unchanged at 5%-5.25%, pausing for the first time after launching ten consecutive monetary tightenings in just over a year.
However, the president of the American central bank has made it clear that the work to defeat inflation is not over and that a pause is not practically a stop
FOLLOW THE LIVE with the ECB Special – 15 June 2023
Christine Lagarde’s latest move by the ECB dates back to May 4, when Frankfurt announced it had raised rates by 25 basis points, bringing interest rates on the main refinancing operations, the marginal lending facility and deposit facilities central bank at 3.75%, 4.00% and 3.25% respectively, with effect from 10 May 2023.
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The QT-Quantitative Tightening is, in fact, the diametrically opposed plan to the QE-Quantitative easing launched by Mario Draghi, and involves the divestment by the ECB of those assets, government bonds of the Eurozone countries, which it has hoarded in the last few years. Launched in March of this year, the QT was immediately seen as smoke and mirrors for the sovereign debts of the bloc, and for BTPs in primis.
Considering the purchases of government bonds that took place with the APP program (technical term of the QE, acronym of Asset Purchase Program), now concluded, and the subsequent divestments of the same with the start of the QT, the ECB itself has announced that, at the moment , the value of the stock of Eurosystem bonds held is €3.388 trillion at the end of May 2023.
Indeed, on 15 December 2022, the Governing Council decided that, starting from the beginning of March 2023, the APP portfolio would decline at a predictable rate, given the Eurosystem’s decision not to reinvest all redemptions obtained with the maturity of financial instruments that have reached maturity. On that day – characterized by the fury of Italy, or rather of the Meloni government – the Eurotower decided that the divestment would average 15 billion euros per month until the end of the second quarter of 2023 and that the pace of subsequent divestments would be been determined over time.
The second quarter of 2023 will end at the end of June. It is therefore very probable that Lagarde’s ECB, in addition to raising rates in the euro area, will accelerate the pace of the QT, which has long been known as threat to Italy’s public debt . It must be said that the specific plan with which the ECB purchased government bonds in the euro area is known as the Public sector purchase programme, also contained in the APP plan.
Italy has more than one reason to fear an even stricter QT, given that for many years the ECB was the main net purchaser of BTP issues by the Treasury.
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Today, the Eurotower should also rattle off its outlook on inflation and GDP trends in the euro area. That said, many will argue with Lagarde that she is determined to defuse rising Eurozone inflation anyway, and especially in the current context of a technical recession.
Not only that: still with regard to BTPs, the Lagarde ECB has left the il in recent weeks alert Japanwhich joins the other SOS launched for the financial stability and even the warning escape deposits from systemic banks. In spite of all the banks in the area and, in particular, the Italian ones, there is now also the stumbling block of the TLTRO program or of that plan launched by Mario Draghi’s ECB, with which the Eurotower had disbursed loans to credit institutions at practically bargain rates.
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With her latest statements, the number one of the ECB Christine Lagarde was clear: “There is no evidence that underlying inflation has reached its peak”. What is even more worrying is what the German hawk Isabel Schnabel, a member of the central bank’s governing council, said that, even if underlying inflation were to peak, the ECB could not declare victory, as the need to bring the rate to ” our target of 2%, in a timely and sustainable manner”. In short: we are not there yet
However, it must be said, to those who fan the flames, that the set of maneuvers that Lagarde’s ECB is launching must always be considered in the light of the current liquidity conditions, which are certainly not desperate. Far from it. To the point that, in the last meeting on 4 May, the president of the Eurotower said that, with the QE launched by Mario Draghi, therefore with the PPA plan, the Eurotower has made such a purchase of securities that, as said Lagarde, “it will take at least 12-15 years to bring the entire program to zero”.