The new rate hike by the ECB has put government bond yields under pressure again

The ECB does not follow the Federal Reserve which has taken a break on rates and continues with the monetary tightening with an increase of 25 basis points which brings the reference rate to 4 percent and the deposit rate to 3.5 percent. The decision was expected, but the fact that the president Christine Lagarde has spoken on several occasions of progress still to be made – effectively anticipating a new increase in July – has put the yields of government bonds of the countries of the Union under pressure and raised a chorus of criticisms in Italy. Although the spread between the BTP and the Bund remained fairly stable at around 160 basis points and Piazza Affari contained the losses, there is widespread concern that if the ECB were to go too far with its hikes, the impact on economic growth could be far more negative than the potential benefits containment of inflation (for the undersecretary of the MEF, Federico Freni, a reflection on the duration and impact of the squeeze should be initiated). On the other hand, a standstill like in the United States could not have been expected, because inflation has fallen to 4 per cent while in Europe it is still above 6 per cent according to the latest May estimate. And even the Fed may not necessarily give up future hikes to reach the 2 percent target, which is identical to that of the ECB. In short, the bet from now on is to see if and which of the two central banks will be more stubborn in reaching their target. The Eurotower appears determined to proceed towards 2 percent and whether this is “a recipe of German culture that dates back seventy years ago”, as noted by Giampiero Maioli, number one in Italy of Crédit Agricole, or whether it represents the right path what to do to pursue price stability in the interests of households and businesses, as most economists agree, is difficult to say. The only sure thing is that the point of falling interest rates which previously seemed very close is now not seen before the end of the year.