Moving type

Moving type



We now face the end of fiscal year 2018 with absolutely divergent monetary policies on both sides of the Atlantic. While in the USA there are already eight increases in interest rates (of a quarter of a point), and the central bank takes some time to lighten its debt holdings, in the Eurozone we continue with a great monetary laxity.

The American economy "goes like a shot." The current president inherited an expansion that had already lasted several years but implemented an untimely and pro-cyclical fiscal reform that, in the short term, has accentuated growth even more. So we can only think that interest rates will continue to rise, even if Trump is surprised and criticizes the Fed without respecting its independence. The Fed approved the last raise unanimously and will probably make further increases to at least 3 / 3.5%. In fact, Powell said last week that the rates are still far from long-term neutrality. It suits them to be better equipped to respond to a possible recession, which may not be far away and, in the worst case, happen even before Trump opts for re-election. On the other hand, long-term dollar rates have also accelerated in recent days to peaks of 7 years. And they are likely to rise more. This will attract capital, further complicating the situation of emerging countries, especially those with the worst fundamentals. And, of course, they will also influence long rates in Europe.

The Eurozone is different. The ECB's super-expansive monetary policy, highly justified and even absolutely essential for a while, is going on too long, with artificially low rates. We are running the risk of the next economic downturn and find us both with monetary policy and with the fiscal relatively unused. The first, to keep the rates down and the balance of the central bank full of assets. And the second, because of the huge level of existing debt and, in some country like ours, even the persistence of a structural deficit.

The types
Only at the beginning of 2019 the ECB will stop buying bonds in net terms, but it will continue to reinvest all amounts that are due. And, a few months ago, Draghi said that interest rates will not start rising until the end of summer next year. It was a relatively surprising announcement for the long period in which it committed the European central bank to remain unmoved. Especially, if we remember the high oil prices, which drive inflation to levels of 2%, and the weakness of the euro with the dollar that imports inflation. And when, on the other hand, the ECB also needs room to maneuver to anticipate a possible recession. However, there are also factors that would effectively retract the ECB from earlier monetary tightening. For example, core inflation, lower economic growth in Europe, the effect of trade war or the situation of Italian debt.

While in the USA there are already eight increases in interest rates, in the Eurozone we continue with a great monetary laxity

In any case, in a maximum of eleven months or sooner, the official rates will end up. In fact, the one-year Euribor, which moves ahead, has already left behind the minimum. And the long US types and Italy are already pulling the Spanish, so that – in the last auction – the Treasury had to offer already a positive return to three years, for the first time in a while.

When they rise, the main beneficiary will be the financial sector because even small elevations will have a significant effect on the bank's interest margin. Spanish banks expect it as May water and it will be especially positive for some very sensitive banks, such as Bankia. And the main victims of the rise will be the most indebted, where Spain stands out both in the private sector and especially in the public sector. So it is better that the negotiators of the State Budgets, which propose 21 increases in expenditures in 2019, do not forget that we are moving towards a growing burden of interest expense. .



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