MILANO – The ECB puts on the table the monetary tightening that the market expected: the time of ultra-accommodative policies is over, even for the Eurozone, after the Fed the gong had sounded. And she does so by acknowledging the fact that the inflation challenge is number one.
The Eurotower, which met in Amsterdam, for the moment does not touch the cost of money, as expected: the principal rate remains at zero, the deposit rate at -0.50% and the marginal loan rate at 0.25%. But the European Central Bank “intends raise interest rates by 25 basis points at the meeting in July “and” he expects to raise rates again in September “. On the other hand, on this second move he leaves the door open to the hawks who would like more substantial tightening, by 50 basis points, to counteract the price rush. in fact, says that the extent of the increase on returning from vacation will depend on the inflation outlook in the medium term. “If the medium-term inflation prospects were to persist or worsen – reads the statement – a greater increase would be appropriate at the meeting of September”.
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The ECB then looks beyond September: “Based on its current assessment, the Governing Council expects a gradual but sustained path of further interest rate hikes to be appropriate. In line with the Governing Council’s commitment to achieving the goal of the 2% in the medium term, the pace at which the Governing Council adjusts its monetary policy will depend on the incoming data and how it assesses the evolution of inflation over the medium term. “
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As he had hinted in the latest communications, the first rate hike in over a decade will be preceded by stop buying government and non-government bonds. And, in this case, it means rewinding the tape eight years back: the program has been going on for so long. The ECB has decided “to put an end to net purchases of securities through the App program from 1 July 2022”, details the press release referring to the Asset purchase program. With respect to the rumors on the eve of an action against the possible widening of spreads in particular in peripheral countries such as Italy, the ECB limits itself to saying that “in the case of new cases of financial fragmentation due to the pandemic, the reinvestments of the program Pepp can be adjusted in timing, asset type and jurisdictions at any time. ” Not a new program, therefore, but to draw heavily on flexibility in the reinvestment of maturing securities.
In the first reactions of the markets, some concern seems to prevail over the indications of the ECB: the lists slow down and the BTP-Bund spread widens slightly.
The expected revisions of the estimates also come from the Eurotower economic staff. Average inflation in the Eurozone is expected to settle at 6.8% this year, before slowing to 3.5% in 2023 and 2.1% the following year, says the ECB in the aftermath of the OECD. heavily cut forecasts. The new statistics have been “revised significantly downward” for growth, for 2022, to 2.8%, and for 2023, to 2.1% while for 2024 there is a slight improvement to 2.1%.