The ECB has decided “to end net purchases of securities through the App program from 1 July 2022”. The European Central Bank has left, as expected, fixed interest rates: the principal rate remains at zero, the deposit rate at -0.50% and the marginal loan rate at 0.25%.
The ECB “intends to raise interest rates by 25 basis points at the July meeting“and” he expects to raise rates again in September “, according to a statement, according to which after September” it is expected that a gradual, but sustained, pace of further increases will be appropriate “.
The ECB expects theinflation remains at high levels “for a period of time”, and “will make it back to the target” of 2%, Central Bank President Christine Lagarde said at a press conference following the Governing Council held in Amsterdam. In September, when the ECB expects a new rate hike after July’s from 25 basis points, “a larger increase will be appropriate” if “the medium-term inflation outlook remains or deteriorates”. The president of the ECB said this, opening to the hypothesis of a 50 basis point increase as the American Fed is doing.
The Christine Lagarde press conference
The possibility that “the war sees an escalation“and that of a” further disruptive impact on energy supplies to the euro area “continue to be a” significant risk to growth “.” If necessary, as we have shown in the past, we are ready to deploy an adjustment of existing instruments, or new instruments “, against financial fragmentation within the ‘euro area. This was stated by the president of the ECB, Christine Lagarde, during the press conference after the Governing Council, referring to possible instruments against a widening of spreads. “We are committed to guaranteeing an adequate transmission of monetary policy, and consequently the fragmentation will be avoided to the extent that it damages the transmission of monetary policy “.
The ECB “will not tolerate” episodes of financial fragmentation in the euro area that jeopardize the transmission of monetary policy in all countries, and if necessary it will be able to deploy new tools. But “there is no specific level of bond or loan rates, or bond spreads that will trigger this or that intervention.” Lagarde said this, assuring that the ECB intends to “prevent risks from materializing”.
Stock markets of the Old Continent all in sharp decline after the decisions of the ECB, especially on the hypothesis of a greater squeeze in the autumn in the event of high inflation. TO Piazza Affari the Ftse Mib index recorded a final fall of 1.90% to 23,776 points. The Frankfurt stock exchange closed down by 1.7%, followed by London down by 1.6%, while also Paris, Amsterdam and Madrid were down, all negative by 1.4%.
Very strong tension on European government bonds and above all Italians after the decisions of the ECB, with the stop on the purchase of bonds confirmed from next July. The 10-year BTP yield in fact concluded the session on the electronic markets at 3.58%, with a maximum for the day at 3.61%, and a jump upwards of 22 basis points compared to the closing date on the eve of the day. The benchmark bond rate is at its highest since November 2018. The spread with the German Bund thus closed at 216 basis points, after a session high of 218, correcting the highest levels since May 2020.
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