The ECB is still postponing the rate cut, penalizing growth, families and businesses

Christine Lagarde, president of the ECB, promises a possible cut in interest rates in June and in the meantime 28% of families in Europe have reduced the quantity and quality of products purchased. Although the savings are running out after two years of continuous interest rate increases and the growth forecasts for the EU in 2024 have been revised downwards by the European Commission itself, Lagarde continues to remain cautious, adding that if the ECB were to decide to lower interest rates, this does not mean that a path of structural reduction will be started: “even after the first cut, we cannot commit ourselves in advance to a particular rate path”, underlines Lagarde. A statement that will do more harm than good for EU families and businesses. The ECB's current monetary policy has in fact had heavy restrictions on bank credit for both companies and families, especially in Italy. On company dashboards, it is worth remembering, they are lighting up some crisis indicators, activated by the cost of money raised to 4.5%, given that unpaid loan installments have increased by over 1 billion euros and the stock of financing has reduced by over 30 billion. From January 2023 to January 2024, underlines a study by Unimpresa, bank bad debts attributable to companies grew by almost 7%, rising from 17 and 300 billion to 18 and a half billion. Given that it incontrovertibly highlights the difficulties of customers in managing financial debt with rising rates.

On the family front, the situation is no better given that there was a drop in credit of 12.2 billion (-1.80%). The mortgage market also fell, with the stock going from 426.2 billion to 423.5 billion. The fall in loans to buy a house has repercussions on the construction sector, the production and sale of furniture and furnishings, transport and other related services. Extending the reasoning to the EU, the latest data published by the ECB is interesting, analyzing how families reacted to inflation. Among the most adopted actions are: reducing consumption, taking out loans, resorting to savings, increasing working hours, taking on a new job or requesting a salary increase. In detail, in January 2024, 69% of respondents to the CES – the Consumer Expectations Survey – of the European Central Bank declared that they had changed their consumption. Also noteworthy are the adjustments made through the savings/credit (43%) and income (31%) channels. The predominant response to the price increase was to reduce both quantity and quality of the products purchased (33%). 35% of those interviewed declared that they had reduced their savings to support consumption while, in terms of income, around 15% declared that they had negotiated a salary increase and 17% that they had worked more hours or had accepted additional work.

Continuing along the path of this restrictive policy certainly will not help the European economy. It is not encouraging to continue to hear Lagarda postponing a possible rate cut because “we want to rely on the data”, if the conditions are those of 2021, when inflation has hit the ECB and its economy like a train without brakes .

On a positive note: the markets like waiting

Even the Fed, it must be said, is not shining in March 2024. According to analysts, the rate cut should arrive between June and July in consideration of stabilized inflation, and to avoid excessive monetary restriction which could weigh on the economic activity. The positive aspect is that “stabilised inflation, the continuation of the growth cycle and the expectations of a reduction in rates represent a favorable combination for the financial markets, partly already discounted by the movements of recent months, but which can continue to support both government bonds, credit markets and shares”, explains Andrea Conti, Head of Macro Research at Eurizon.