The ECB does not change its mind: on with bond acquisitions

Central banks are already involved in the big maneuvers, but not the ECB. The Eurotower appears to be harnessed in its family lexicon, a little worn by its use and by what is happening around the world. The words spoken yesterday by Christine Lagarde at the end of the board who, as expected, left the bowls still, in fact, trace what has already been heard on other occasions. And therefore, yes, inflation rises due to energy increases, the recovery of post-pandemic demand, VAT in Germany, “but the influence of these three factors will ease in 2022”. Second, the eurozone economy “continues to grow strongly”, even if supply bottlenecks act as a brake. Third, the markets can also bet on a rate hike within a year, but these expectations “are not in line with our criteria” which set the conditions for a tightening. To all this must be added yet another emphasis that the Pepp, the securities purchase plan of 1,850 billion euros, will come to an end not before the end of March 2022.

In short, everything appears crystallized on the upper floors of Frankfurt. And this immobility resembles, paradoxically, a movement in the opposite direction from the other custodians of the monetary temples. If the Federal Reserve has already announced its tapering and the Bank of Canada has announced both the early closure of quantitive easing and a crackdown on the cost of borrowing between April and May next year, the Australian central bank just yesterday refrained from buying two-year bonds, immediately doubling their yields. In short, there is an awareness that the inflationary flare-up will not be temporary and that, even when supply has been realigned to demand, the increases will not be reabsorbed.

The situation in Euroland is no different than in other countries. The cost of living rose to 3.4% in September, but in Spain prices have already jumped to 5.5% in October, a level not seen for almost thirty years. Even if it rejects what now seems to be evidence, namely the non-transitory nature of the phenomenon, time is not on the side of the ECB. In December it will be inevitable to announce how the drying up of the Pepp will be articulated, whose purchases will have to reset in four months. The caution with which Frankfurt treats the tightening of aid has a reason: to avoid tensions on sovereign bonds, which however can already be seen in the BTP-Bund spread, which rose yesterday to almost 120 points. It is a first wake-up call. Not to underestimate.