The comment of Antonio Patuelli, number one of ABI, who raised the alarm on BTPs.
“I believe that an ECB rate cut of 25 points in December is likely.” This is what Antonio Patuelli, president of the ABI, the Italian Banking Association, said during his speech at the ABI seminar underway in Florence, reflecting on what the European Central Bank’s next moves could be, after the third rate cut of 2024 last Thursday, October 17.
Patuelli added that he believes another reduction in the cost of money in the euro area is “possible,” but on one condition: that is, “provided that there is no resurgence of the crisis in the Middle East, with the consequent increase in the price of oil .”
In that case, just as happened with the war in Ukraine that began on February 24, 2022, when the surge in raw materials triggered the flare-up of inflation, the price trend could once again become hostage to that of commodities, pointing upwards and re-presenting the inflation VS growth dilemma that has haunted Christine Lagarde’s ECB in particular in all these years.
Not just rates, Patuelli (ABI): watch out for the ECB’s diet on BTP & Co.
Patuelli spoke about the ECB today, also referring to the process of budget thinking that the institution is carrying out with the QT-Quantitative Tightening, a plan with which it is liquidating the number of government bonds, BTPs included, which it bought up when the opposed program was active, namely the QE-Quantitative easing, a monetary bazooka created by former president Mario Draghi.
“ The ECB is buying fewer and fewer government bonds, including Italian ones ,” ABI president Patuelli recalled during a seminar with journalists in Florence - indeed, yesterday’s BTP auction went very well (referring to the fever that exploded for 7- and 30-year BTPs offered by the Treasury, with requests for more than 200 billion euros), but be careful. Because the ECB renewing fewer and fewer bonds and declaring this in its press release for several months is news that is not widely circulated but has great banking and financial significance ”.
Patuelli explained that the effect of the QT will be greater competition for liquidity invested in time. Certainly, Pauelli added, “more will be needed for government bonds, because the less the ECB buys, the more the market will have to buy them”.
“At the same time - added Patuelli - banks faced with expected mortgages for families and loans for businesses will need more time deposits, because the balance of banks’ liquidity between deposits and loans is fundamental".
The president of the ABI recalled in this regard that "the greatest risk for banks is that relating to liquidity", recalling the banking crisis that exploded in the United States in March 2023.
As president of the Association of Italian Banks, Patuelli today forwarded a request to the Italian and European authorities, underlining that "first of all we ask for stability of the regulatory framework ".
The banker spoke of a "European regulatory earthquake", which "we trust has settled with 10 years of Banking Union".
"The Italian one too - he added - needs a stability of perspective because banks and businesses can operate and invest if they have a stable framework, whereas if there is uncertainty, expectation prevails”.
ECB rates: what Lagarde said. The charge of the doves
Returning to the ECB, pay attention to the statements released by president Christine Lagarde yesterday, concerning the direction of rates in the euro area.
The Eurotower’s number one spoke of a clear direction, stating that the pace of rate cuts will be decided on the basis of some elements, both past and future, that will confirm or deny the return of inflation in a sustainable way towards the target desired by the institution, equal to 2%: something that, according to expectations, should happen during 2025.
Lagarde also recalled, however, that some components of inflation, such as that of services, remain persistent, stating that the pressure on wages is instead showing signs of slowing down.
The statements came in the midst of the warnings that some members of the Governing Council of the ECB are launching regarding a growth in inflation, in the Eurozone, that is weakening excessively.
In fact, in September, the bloc’s consumer price index recorded a growth of +1.7%, below the Eurotower’s 2% target, fueling doubts that the real threat to the euro area could return to being deflation, rather than the surge in inflation.
In the last few hours, fears in this sense have been confirmed in particular by the governors of the central banks of France, Portugal, and Finland, also members of the ECB’s Governing Council.
"There is a risk that inflation will fall below the target", said central banker Francois Villeroy de Galhau, in a lecture at New York University, inviting the Eurotower to maintain an "agile pragmatism" to avoid the risk of being left behind in the path undertaken to cut rates.
Portuguese counterpart Mario Centeno agrees, having repeatedly warned the ECB of the danger of keeping eurozone rates high for too long.
“I see more risks of inflation remaining below target than of the opposite situation, and most of the risks that we are seeing, the downside risks that we are contemplating right now in our projections, are endogenous risks,” Centeno said, speaking at an event organized by the Peterson Institute of International Economics in Washington.
Finally Olli Rehn, central banker of Finland, stressed that the growth outlook is currently so weak that the ECB has to consider the risk that inflation, instead of rising, ends up falling.
Original article published on Money.it Italy 2024-10-23 14:05:42. Original title: Taglio tassi BCE in arrivo anche a dicembre. Ma a una condizione
