The ECB leaves rates and Pepp program unchanged but, in the second quarter of the year, will “significantly” accelerate purchases of securities through the pandemic emergency program to counter the “steepening” of the yield curve. A decision pleasing to the markets, which toast and push the spread between ten-year BTPs and German Bund counterparts down to 93.5 points, with the Italian bond rate down to 0.574%. The choice, said the president of Eurotower, Christine Lagarde, was voted “unanimously”. The danger to be avoided is that the tensions on bonds could “translate into a premature tightening of financing conditions in all sectors of the economy”, sinking hopes of recovery.
However inflation is not a problem, although “on the rise in recent months”. Overheating, however, is only due to “transient factors and higher energy costs”. This is also confirmed by the new ECB estimates. According to Eurotower technicians, the cost of living index in the Eurozone will rise by 1.5% in 2021, by 1.2% in 2022 and by 1.4% in 2023. Perhaps this year it will it could even reach 2% for “technical and temporary reasons”. What matters, however, said Lagarde, “is to look at the medium-term prospects”, which remain “far removed” from the ECB’s target of inflation close to but below 2%.
In any case, the will of the ECB is not to control the interest rate curve. “We don’t have a benchmark yield but we want to maintain favorable financing conditions,” explained the president. And, in any case, the Eurotower “does not monitor the progress of purchases through the Pepp on a weekly basis”. The rule “is flexibility in monthly purchases based on the quarterly decision taken by the board of directors”. This is another reason why we should not expect “a marked increase in purchases as early as Monday”, noted Lagarde, who also specified that she “did not have a number in mind” on the extent of the acceleration.
On the macroeconomic front, the ECB expects that, after the 5.7% decline in the last three months of 2020, the Eurozone’s GDP will also fall in the first quarter of this year. The vaccination campaigns, however, give hope for a positive second half of the year e economic activity is expected to expand by 4% this year, by 4.1% in 2022 and by 2.1% in 2023. All this net of the $ 1,900 billion Biden package approved yesterday by the US Congress. “We believe it will have an impact, although we must not overestimate it,” on the euro area, Lagarde said, “and we will see it in three months, when we finalize our June forecasts.”