The iinflation will return “to target in a timely manner”, but "the economy is stagnant, domestic demand is weak” and “disinflation is accelerating”. The mergers? Million dollar question of the last period: “Desirable” is the answer of Christine LagardeThese are the main issues addressed by the President of the ECB during her hearing at the European Parliament.
Lagarde on banks: “Mergers are desirable, they bring advantages”
At a time when the eyes of all Europe are on Germany to try to understand what will happen between Unicredit and Commerzbank, Christine Lagarde, does not directly enter into the merits of the matter, but with her words she makes it clear what the position of the European Central Bank is: "Cross-border bank mergers are desirable – he told EU parliamentarians – I do not make observations on specific mergers”, he specified. Then he added: “I consider mergers between banks in the euro area desirable, they bring benefits”.
Subsequently, questioned again on the UniCredit-Commerzbank case, Lagarde reiterated that “larger banks with better profitability, a larger scale, better debt situation, are likely to be able to better compete with American and Chinese banks: as with any other cross-border merger, the ECB will analyse the UniCredit-Commerzbank case without any particular bias”.
Already on September 12, after Unicredit had announced the purchase of the first 9% stake in Commerzbank, the number one of the ECB had said that "banking consolidation at European level is something that is hoped for for a long time from various quarters and it will be interesting to see how it proceeds in the weeks to come”. Not surprisingly, according to rumours, several central bankers would be annoyed by the attitude of the Berlin government, who expressed clear opposition to the possible marriage between the two institutions.
Lagarde: “Confidence in inflation returning to 2%, we will take it into account in October”
Turning to monetary policy, Lagarde said that “the new data available at the time of the Governing Council meeting in September have strengthened our confidence in the timely return of inflation to our 2% objective”, which the Governing Council will take into account at its next meeting in October. In any case, “we are determined to ensure that inflation returns to our medium-term objective of 2% in a timely manner. We will continue to follow a data-dependent approach to determine the appropriate level and duration of the tightening, focusing on the inflation outlook, underlying inflation dynamics and the strength of monetary policy transmission”
The number one at the Eurotower then explained that “disinflation has accelerated over the past two months with the headline rate dropping to 2,2% in August and expected to fall further in September, mainly due to falling energy costs.” Speaking about the near future, “inflation may temporarily increase in the fourth quarter of this year, as previous sharp declines in energy prices exit annual rates, but the latest developments reinforce our confidence that inflation will return to target in a timely manner. We will take this into account at our next monetary policy meeting in October.”
ECB heading for rate cut in October?
“Key rates will be kept sufficiently restrictive for as long as necessary to achieve our objective and we are not committing ourselves in advance to a particular rate path,” Lagarde stressed, but there are more and more analysts who believe that the Eurotower will bring forward the third rate cut of the year as early as October, concerned about the latest data that indicate a sharp slowdown in the macroeconomic picture. next. "We expect the ECB to cut rates by 25 basis points at its meeting on 17 October for risk management reasons", write the experts at BNP Paribas, according to which "recent data indicate a increased risk of deterioration more marked than economic activity in the eurozone, while the short-term inflation outlook appears positive”. At the same time, however, the estimate of “another cut in December” remains the most likely hypothesis at the moment, even if Lagarde's words have raised more than one doubt among investors, so much so that after her speech the yields of government bonds in the eurozone fell, with the rate of the 10-year BTP falling to 3,44% and that of the Bund to 2,11%. The spread is at 132 basis points.
Lagarde: “Stagnant economy, weak domestic demand”
“Economic activity has remained largely stagnant”, said Lagarde, explaining that “this is due, among other factors, to the shock in energy prices following Russia's invasion of Ukraine and growing geopolitical uncertainty, but also to the tightening of monetary policy”.
The ECB President added that “growth in the second quarter came mainly from exports and government consumption. Domestic demand remained weak as households have consumed less, firms have cut business investment and real estate investment has fallen. The services sector is holding up, with signs of deceleration, while activity in manufacturing and construction remains weak.” Looking ahead, “the level of some survey indicators suggests that the recovery is facing headwinds. We expect the recovery to strengthen over time, as rising real incomes should allow households to consume more,” Lagarde said.
