There have been no formal meetings at the European Central Bank (ECB) for months now.
Not even on Holy Thursday.
Faced with the galloping inflation that the euro zone is going through, aggravated by the war in Ukraine, the institution chaired by Christine Lagarde decided to give another small acceleration towards this process that it has baptized as "monetary normalization", which consists of leaving behind the era of negative rates .
The Eurobank has set the third quarter to put an end to the debt purchase program with which in recent years it has deployed an extraordinary monetary expansion to collect cable.
Step by Step.
"A quarter has three months," Lagarde recalled in his appearance after the Governing Council of the ECB, referring to the fact that he can conclude the purchases in September.
But the huge shock waves from the war to the European economy point to July.
According to the central bank, a month and a half after the Russian invasion, the economy is already feeling the “serious” effects of the conflict.
“I have lost my voice!” Lagarde excused herself – who was forced to stay at home by the covid – so as not to respond to a journalist who asked her about the rumors that she will be the next French prime minister, in the event of a Emmanuel Macron's victory.
The French elections, and specifically the renewed threat from the extreme right, emerged a few months ago as the greatest geopolitical risk that Europe could face.
Even without clearing up this variable, the main source of instability today is Ukraine.
"The conflict and the associated uncertainty weigh heavily on business and consumer confidence," Lagarde said.
The war has caused a surge in raw materials and energy, new bottlenecks and distribution problems, and new trade tensions stemming from Western sanctions on Russia.
internal division
The minutes of the last Governing Council already showed their internal division on the direction to take.
The
hawks
asked to speed up the path to the rate hike, while the
doves
they wanted to wait.
And until now, Lagarde has been choosing to reconcile both souls with concessions to both sides.
Not without giving the odd lurch.
"The Council has considered that the new data available since its last meeting reinforces its expectation that net purchases under its asset purchase program should conclude in the third quarter," says the statement issued by the institution.
Until now, the end of debt purchases was only a possibility.
Not now: it is more than that.
And it will probably happen in July.
In exchange, the French company continues to respect the time requested by the South to verify that all the conditions to raise rates are met.
In other words, the increases will not be immediate since the bazooka is saved, which will still inject 40,000 million euros in April, 30,000 in March and 20.
The ECB is still behind the Bank of England and the Federal Reserve, which are already on the rise.
Frankfurt kept rates at 0% on Thursday.
“Europe is different and the ECB is different.
Instead of a panic reaction, the ECB continues its very gradual normalization, which, in our view, means an end to net asset purchases over the summer and an end to the era of negative interest rates before the end. year,” says Carsten Brzeski, Macro analyst at ING.
Lagarde herself again marked distances with the United States: the euro zone neither has its low levels of employment, nor the wage tensions on the other side of the Atlantic and, furthermore, it borders a country at war.
Exchange rates
The markets, however, continue to believe that rates will rise sooner rather than later.
In fact, the end of the debt program brings that increase closer.
And this is already being reflected in the debt markets: the ten-year German bond is already offering a yield of more than 0.8%, while the Spanish debt is showing 1.8% and the Italian 2.5%.
The Euribor also increases and is now entering positive territory, making mortgages that benefited from years of negative rates more expensive.
Lending standards are expected to tighten further in the coming months as banks factor in the adverse economic impact of Russia's aggression towards Ukraine and higher energy prices.
Instead,
That gradualness that Lagarde insisted on caused the euro to give way again against the dollar and stay below 1.08 dollars.
The exchange rate, which penalizes Europe because energy contracts are denominated in dollars, is also under the radar of the ECB by influencing medium-term inflation through imports.
Lagarde's speech, therefore, did not deviate from the maxim that she has wanted to imprint on her policy since she announced in December last year that new times were approaching: "Optionality, gradualness and flexibility."
And data.
Therefore, it is not expected that further steps forward can be taken until new economic prospects become available in June.
Among others, the institution observes two: inflation expectations and possible second-round effects.
That is, wage increases, which the French said are being "modest" for now.
In the constant dilemma between growth and inflation, the ECB seems to have opted for the latter, at the risk of risk premiums skyrocketing.
The institution is concerned about this fragmentation, but for now no new solutions are proposed.
Still, he remembered: