Christine Lagarde speaks and the cost of Italian debt rises. It’s a shame because the Governor of the Bank of Italy, Ignazio Visco, did everything he could to try to convince the President of the ECB that yes, inflation must be fought and rates must be raised, but with caution and judgment, no Federal Reserve – hysteria style. But no, in Frankfurt they seem to have decided that the cost of money must be increased even more and also quickly and patiently if the loss is the little growth gained after the great pandemic. And so, Lagarde dixit, the European Central Bank will continue to raise interest rates, until they reach “levels capable of bringing inflation back to our medium-term objective (2% symmetrical, ed.) in good time”. Because “simply removing monetary accommodation”, that is, bringing rates to the level considered neutral “may not be enough”.
Hence the warning to sailors, with the probable satisfaction of the German hawks starting with the governor of the Bundesbank, Joachim Nagel: restrictive levels of rates may be necessary, clarified Lagarde speaking at the European banking congress in Frankfurt. And it’s not over yet. In addition to acting on rates, which are the first line of action “in the current context, the balance sheet (of the ECB, ed.) should be normalized in a measured and predictable way”.
This also means reducing the amount of securities stocks accumulated with the various anti-crisis programs of recent years. In December, highlighted the former director of the International Monetary Fund, “we will define the fundamental principles to reduce the stock of securities in our portfolios”. But “at the same time, our tools to preserve the orderly transmission of monetary policy, in particular the flexibility on bond renewals in the PEPP program and the new anti-spread mechanism (Tpi) will remain active”. In short, Eurotower’s basic philosophy is that the difficulties of national and European institutions in responding to current macroeconomic problems consist not only in finding quick solutions but in controlling an environment that, precisely because of these problems, is changing completely. It’s enough to have pushed the yield on the 10-year BTP, the benchmark bond for Italian finance, beyond 4%. While the spread remains almost flat in the 190 basis point area. But Frankfurt’s message remains loud and clear. Also at the Bank of Italy.
Source: IL Tempo
Roy Brown is a renowned economist and author at The Nation View. He has a deep understanding of the global economy and its intricacies. He writes about a wide range of economic topics, including monetary policy, fiscal policy, international trade, and labor markets.
