Editorial - January 2023


Temps de lecture : min

The start of a journey

This is how the President of the European Central Bank described the end of extraordinary monetary policy measures in June. A long journey on which money will no longer be easy or cheap, given the combined effect of the gradual end to asset purchase programmes and the increase in key rates, the first since 2011. The start of a new journey that becomes clearer when we remember that these unorthodox measures were designed and implemented in 2015 to combat the spectre of deflation... It was therefore high time to change the road map!

   Interest-rate markets will have to learn to live without the support of this buyer of first resort. Above all, they will have to wean themselves off previously abundant liquidity. And this is the first challenge of the new year. While the leverage effects of regulated players are controlled by their respective supervisory authorities, this is not the case for non-bank intermediaries.

« This shadow finance poses a clear risk to financial stability through their leveraged positions, where margin calls can increase sharply in response to the volatility of illiquid asset classes. »


Liquidity could well be the main issue on the markets’ agenda in 2023, as we will see the parting of the ways between fiscal policies that are still expansionary, due to the need to support private operators seeking protection, and monetary policies that have become restrictive. Such a decoupling could spark a liquidity crisis.

   The other effect of this major change of course by central banks will be to make the situation untenable for the worst-rated issuers, as rising rates reduce interest coverage ratios. This observation applies to private operators as well as to states such as France, whose public debt is soon likely to reach €3,000bn, with debt service of more than €50bn in 2023. The sharp rise in this latter figure is due to the effect of interest-rate rises on the cost of financing new bond issues, but above all to the rise in inflation, which considerably increases the cost of existing French bonds linked to... European inflation.

   Finally, it seems that the start of the ECB’s journey could have dramatic impacts in other social and financial areas, forcing it to reverse course.

Written by

Francis JAISSON 
Deputy Director-General in charge of all Management, Marketing, Negotiation and Research

January 12, 2023

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