Like the guy who says he has not crashed on the ground, because he is still in the air falling down, the governing council of the ECB decided today that inflation is not so high as to justify a change in monetary policy yet. (A reminder: 7.5% on average for the Eurozone, with 9.3 Belgium, 7.6 Germany, 14.8 Estonia, 9.8 Spain, 11.9 Netherlands, 15.6 Lithuania).Therefore, there will be no early termination of its main asset-purchase program (APP) before the scheduled deadline of Q3 2022, and no early change in interest rates before “sometime” after the termination of the APP.
Furthermore, the ECB will keep rolling over its current stock of APP assets, as well as the stock of PEPP (Pandemic Emergency Purchase Program). Additionally, it will decide whether to support more exposed sovereign debt beyond capital key rules. In a press release, the ECB mentioned Greece as one possible case.
The ECB lied that “Russia’s aggression in Ukraine is … affecting the economy. ... Surging energy and commodity prices are reducing demand and holding back production.” And, “How the economy develops will crucially depend on how the conflict evolves, on the impact of current sanctions and on possible further measures.”
Meanwhile, yields on sovereign debt are increasing independently from the ECB money policy. An Italian debt tender saw a three-year yield rising to 1.32% from the 0.57% of the previous tender. Seven-year bonds were sold at 2.04% (up from 1.47%). Ten year-bonds are at 2.37%, slightly below U.S. Treasury (2.67%). German ten-year bond yields have gone up as well, to 0.77% from a minus 0.59% last year. The curve is going steeply upwards.
Credit volumes to firms have decreased, according to the Italian financial daily Il Sole 24 Ore, while consumer credit has increased.
