Why does ECB activism have no effect on the real economy? Csc report
The resources injected by the ECB slowly reach the real economy. What can be read in the report of the Confindustria study center on ECB policy
Hyper-expansionary ECB also in 2022?
The ECB confirmed its hyper-expansionary measures in September, expanded in 2020 in response to the crisis. The only novelty was a small reduction in the pace of purchase of securities under the emergency program, which however falls within the flexibility already envisaged, used in an expansive sense in March.
The monetary stimulus in the Eurozone, therefore, remains very strong, despite inflation has recently jumped above the target (+ 3.4% per annum in September), driven by energy prices and the economy is expected to recover pre-existing levels. -crisis by 2021. In a scenario without new shocks, a slow approach to the exit from expansionary measures is now expected, which could materialize by 2022 for the part relating to securities.
The rate on loans is steady at zero and that on bank deposits at -0.50%. The ECB forward guidance continues to indicate that rates will remain unchanged (or will be reduced to the downside), until inflation permanently approaches + 2%, with an underlying trend consistent with this value. This may mean accepting total price dynamics above target for some time. In the CSC scenario, the ECB will hold official rates firm both in the final part of 2021 and in 2022. The Euribor market rate (-0.54% in September) will remain in negative territory: this favors credit to the real economy.
The ECB is continuing two programs for the purchase of securities, public and private, issued in the Eurozone: the pre-pandemic program, at the rate of 20 billion euros per month (Quantitative Easing-2); the "emergency" program, up to 1,850 billion, which has a maturity of March 2022. This second instrument,
as mentioned, it is flexible in timing, in the type of securities, between member countries, at the discretion of the ECB. In addition, the Bank continues to reinvest in securities the sums collected by those that mature, to avoid an erosion of the stock. Bonds in the balance sheet, therefore, quickly rose to € 4,452 billion in September (+758 since the beginning of the year): € 1,376 billion of the pandemic program, 2,448 billion of government bonds, 296 of corporate bonds. All of this contributed to containing sovereign spreads in the area, keeping medium / long-term rates low.
Furthermore, the purchases also act in favor of the liquidity of European companies. The ECB is also lending ample resources to European banks, including for the maturity of its previous loans. This helped to avoid, even during the crisis, any difficulty in bank funding and therefore any impact on credit to households and businesses. Every 3 months, from the end of 2019, Frankfurt issues new "extraordinary" loans to banks (TLTRO-3), with a duration of 3 years, with incentives to provide more credit and therefore more favorable conditions on rates and large volumes available. These operations provided 1,647 billion in 2020; in 2021 so far we are at 538 billion, waiting for the last one in December. Total ECB loans, as a result, continued to grow, up to 2,212 billion in September (of which 463 to Italian banks, 21%), +419 since the beginning of the year. Conversely, Eurozone banks have huge deposits with Frankfurt, which continue to increase: 4.483 billion in September (of which 418 Italian banks, 9%, much less than the share on loans), +994 since the beginning of the year. These are the deposits to which the negative rate applies, even if the ECB has partially exempted them to limit the impact on the profitability of the institutions.
These deposits, also in 2021, are growing together with the ECB's loans and purchases of securities, but at a slower pace: this indicates that the resources injected by the ECB are slowly reaching the real economy.
(Extract from the report of the Confindustria study center; here the full report)
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/perche-lattivismo-della-bce-non-ha-effetti-sulleconomia-reale-report-csc-confindustria/ on Sun, 17 Oct 2021 07:28:10 +0000.