The European Central Bank (ECB) will begin tapering its generous asset-buying program in the fall, according to the CEO of Italy’s largest retail bank, with interest rate hikes to follow as soon as 2018.
“In one year (or) a couple of years, we will have, for sure, a reduction in quantitative easing and we will have an increase in interest rates,” Carlo Messina, chief executive officer at Intesa Sanpaolo, told CNBC on Wednesday.
The ECB held the euro zone’s benchmark interest rate at zero percent and left monetary policy unchanged at its April meeting. President Mario Draghi also confirmed the central bank planned to maintain its monthly pace of quantitative easing (QE) until at least the end of the year.
Many observers correctly predicted the ECB would not amend monetary policy shortly before the run-off vote in the French election, while Messina suggested it would be Germany’s vote for a new premier in September which could become the threshold for Europe’s central bank to amend its approach.
“The position of maintaining (QE) will come to an end, in my view, after the German election… But starting from 2018, it is likely that interest rates can increase and there could be some reduction in the amount of government bonds that can be bought by the ECB,” he added.
European banks have been struggling with ultra-low interest rates as they attempt to restore their balance sheets in the aftermath of the global financial crisis.
At the start of May, Intesa, which is perceived as a bellwether to the Italian economy, reported surprisingly upbeat first-quarter earnings as bumper profits appeared to offset a fall in net national income and fees paid into a national bank resolution fund.
Net income at Intesa Sanpaolo rose 11.8 percent in the first three months of the year to 901 million euros (979 million dollars).
In January, Intesa had been heavily linked to a potential tie-up with Italy’s largest insurer, Assicurazioni Generali, but later announced it would scrap plans for a possible merger.
The bank explained its desire to remain one of the strongest capital bases among its domestic competitors was ultimately a key part of the decision not to proceed.
“There was no possibility to create value for my shareholders and so I decided not to proceed. That is the story of Generali,” Messina concluded.