In which ‘strong vigilance‘ = ‘token gesture’.
Three charts on the European Central Bank and the euro periphery, from Credit Suisse’s global equities team on Monday:
We would counsel attention to the middle chart. As if millions of Euribor-linked mortgages suddenly cried out in terror, and were suddenly silenced…
So you might just appreciate why ‘token gesture’ is Credit Suisse’s phrase of choice for next month’s (probable) 25bps rate hike. One very good point follows:
Furthermore, ECB’s decision on liquidity is more important than a token gesture on rates. This is because there is still a $1.2trn shortfall of deposits in Europe, according to BIS data (with the loan-to-deposit ratio in Ireland at 160%, for example). It is critical that the ECB continues to provide ample liquidity. Indeed, over the past 18 months when the ECB suggested it would reduce its liquidity provision, we have typically seen sharp escalations in Euro tensions.
At the same time as promising (threatening?) ‘strong vigilance’, of course, the ECB also opted to keep fixed rates for its open market operations, rather than variable ones that might have trod on the addicted banks. Like, you know, Irish banks.
The ones with all those mortgages…
Related links:
Eurozone interest-rate hindsight - FT Alphaville
Extensive Irish forbearance, what was it good for? - FT Alphaville
What lies in Greek RMBS - FT Alphaville
Hayek would have told the ECB to print more money - Money Illusion