A monetary policy for the credit to the economy – Il Sole 24 Ore

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This article was published April 8, 2016 at 06:27 hours.
the last change is the April 8, 2016 at 8:11.

With a barrage of interventions of its most prominent exponents, by Mario Draghi to Ignatius Visco, by Peter Praet to Benoit Coeuré, the European central Bank reiterated in no uncertain terms that it will not accept too low inflation that is gripping the eurozone now for too long. The governor of the Bank of Italy, Visco, spoke in Frankfurt ‘need for ambitious decisions “.

In March, the board, not without internal dissent Dutch-German axis, has launched a package with three components: the rate cut, the increase and expansion of purchases of securities (the Qe) and a new set of targeted funding to banks asking them real economy, to more than favorable conditions, in addition to ‘ lengthening of perspective directions on rates, the so-called forward guidance.

Yesterday, Draghi acknowledged that it will take time before these measures act on the economy and unfold its effect completely. And this is the first message in the sequence of speeches yesterday, supplemented by the council last report: the ECB stands ready to further measures, if things get worse, but for now wants to test the effects of those already adopted. Even before the allegations of hyperactivity (especially in Germany) on the one hand, and the impatience of the financial markets on the other, Frankfurt noted that for the moment it will stop.

The second signal concerns the nature of the stimulus : the rate cuts of the past few months, including negative rates on banks’ deposits with the ECB, they also had the aim, not declared, to use the currency weakness to give breath and then export activity. This phase is completed, for several reasons: the uncertainties about the future path of US interest rates, which now no longer seem so divergent from those in Europe to cause a rise in the dollar (in fact in recent weeks, the opposite has occurred), the global demand weaker which reduces the external drive and the preference of the ECB itself for a break in the cuts in interest rates, including the possible side effects (that for now have not fully materialized) on financial stability.

so there is a passing of the baton, explicitly stated by Draghi in his speech yesterday in Lisbon. The package approved by the board in March, said the president of the ECB, “gives priority to households and loans to enterprises.” By the change to credit. The incentive for the banks, which in the past had used the cash from the ECB also and above all to buy government bonds of the respective countries, it is very strong: even receive a prize from the central bank if the cash borrowed with Tltro2 exceed certain benchmarks in new jobs. This should allow among other banks to at least partly compensate the difficulties that creates them a curve very flat rates and compression in interest margins. In the past, the ECB’s ability to stimulate the economy through this channel was affected by the low propensity of banks to make new loans, in the midst of a process of deleveraging, and the demand for fairly weak credit coming from the real economy. It remains to be seen whether these problems are overcome. On this occasion, however, loans to banks are accompanied by purchases of securities, the Qe: means that the ECB does not depend only passively, by banks ‘demand, for its stimulating action, but pursue actively the’ expansion of its balance sheet. In Frankfurt they insist that all actions are complementary and reinforce each other.

The test can only come from the facts. The ECB hopes that the headwinds last year fade, but in the current global uncertainty is hard to get us into account. What is certain is that, as acknowledged by the Dragons, it will take time. And that’s what starts to run low, if you do not want to risk a spin, an undocking, in the jargon of central bankers, inflation expectations.

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