The risks of a worsening of the euro area economy “have increased mainly as a result of the outcome of the referendum in Britain” but estimates about it ‘are still subject to a high level of uncertainty so that the situation requires a lot of caution in assessing future trends. ” This is what we read in the meeting protocol that the ECB Governing Council held on 20-21 July in Frankfurt, concerning the outcome of the referendum of June 23, the output from the British EU, pointing out that on this point has emerged “broad consensus ». At the same time it is stressed that “the reaction of the financial markets the euro has been more limited than could be expected in the initial response in both the partial recovery that followed.”
needed more time for evaluation after Brexit
Brexit not stop shopping: retail sales +1.5 in July
According to the board of the central bank, “the incoming data confirm the baseline scenario of moderate economic recovery and of inflation rates on the rise “in the euro area. Even in minute released today emphasizes that “even if uncertainty has increased after the outcome of the British referendum on the EU, nevertheless it is considered that it was premature to assess the possible economic implications for the euro area.” In the coming months, this is the conclusion, “As you make more information available, including new staff estimates of economists from the ECB, the Governing Council will be in a better position to reconsider the conditions and the basic macroeconomic risks ». Meanwhile, the Eurotower “will continue to monitor closely economic developments and financial markets”, confirming that it is ready “to act if necessary to achieve the objective of price stability.”
The vulnerability of banks to re-emerges each new shock
divided Fed, Wall Street recovering
As for the accused declines in the stock market by banks in the euro area after the referendum on Brexit, during the discussion it was determined that the declines of bank stocks “may be due in part to the direct impact of the referendum.” On the other hand these “also reflect the continuous basic weakness of bank profitability, due in turn to a prolonged period of moderate growth and low interest rates but also to matters such as the levels of the past, still very high in some parts the euro area banking system of problem loans, “she Npl,” which continue to weigh on bank balance sheets. ”
During the meeting “it was pointed out that these vulnerabilities tend to re-emerge with each new shock that pose a risk to the euro area recovery.” Although the volatility of bank shares on the Stock Exchange “is not in itself a concern, nevertheless it calls for attention – continues in the protocol – if were to weaken the functioning of the channel of bank loans” and consequently “the policy transmission Eurozone monetary real economy. ” In any case, is the final assessment, the euro area banking system “is considered much stronger than the overall assessment of bank financial statements conducted in 2014.”
Do not pump undue expectations on future decisions
During the meeting of 20-21 July, the ECB Governing Council has found, finally, “a broad consensus” that it was necessary “to reaffirm the will and the capacity to intervene,” the the Board “as necessary to achieve its objective, and using all the tools available within its mandate, without food undue expectations about the future course of monetary policy.” Although the overall picture remains unchanged, with a moderate recovery under way, inflation rates in recovery and highly favorable financial conditions, we read in the minutes of the meeting spread throughout the day, “nevertheless new headwinds have emerged from the British referendum and the ‘ uncertainty is also increased due to geopolitical developments elsewhere and the situation on the financial markets. ”
However, “it is estimated that the time was too early to assess the possible implications of these unfavorable factors on the economy, and on price prospects in the euro area.” What emerged was “a shared feeling among councilors – is the conclusion – it was too early to discuss any type of monetary policy reaction at this time” and that “there was a need for more time to evaluate all incoming information in the coming months although the risk of worsening were clearly increased. “
(Il Sole 24 Ore Thomson Plus)
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