It has perhaps never been so difficult to predict the next Livret A rate because it is a real headache for the public authorities who will have to make the decision in mid-July. That is to say, to arbitrate between the preservation of the real yield of the preferred savings medium of the French in the inflationary context that we are experiencing and the cost incurred for financial institutions and social housing whose borrowing rates depend on that of the Livret AT.
A devious calculation formula
There is, however, a calculation formula which finally passes on the peak of inflation and therefore leads to a new sharp increase in the rate of remuneration of the Livret A and the Livret de développement durable et solidaire (LDDS) from August 1st. But as always, the result of this calculation will be analyzed by the Banque de France in mid-July with the possibility of rounding or adjusting the final rate downwards, which is then subject to the government’s final decision.
It is in this context that the banking lobby has been very vocal in recent weeks, including the managing director of Caisse des Dépôts, Eric Lombard, who had pleaded for the stability of the Livret A rate at 3%. In fact, the banks bear only part of the burden of interest on the Livret A, i.e. up to the amount of the funds they centralise, with the Caisse des dépôts bearing the majority (59.5 % of total) to finance social housing.
Political decision
The Minister of the Economy, Bruno Le Maire, assured France Info in early May that he would accept the Banque de France’s proposal as he has always done, while insisting on his responsibility to ” protect the savings of the French, especially in this period of crisis “. Quite ambiguous remarks because if the minister really wanted to protect the savings of the French people from inflation, the easiest way would be to let the calculation formula do it. However, we suspect that the Governor of the Banque de France, François Villeroy de Galhau, will propose to derogate from it as he did last January: he had then chosen to round down, from 3.30 % to 3%, the theoretical rate of remuneration of the Livret A and the LDDS, invoking in particular the cost for social housing.
What does the calculation formula say?
To return to the calculation formula which depends on the half-yearly average of the inflation rate for the last six months (excluding tobacco) and the short-term interbank rates for the Euro zone (€STR), with a rounding calculated to the tenth of a point the nearest, it always leans towards a rate higher than 4%. According to our calculations, on the basis of an average inflation contained at 5.6% over the first 6 months of the year given a slowdown to 4.6% in June (according to the latest estimates of Insee), we should finally arrive at a theoretical rate of 4.10% with a half-year average of the €STR which we still estimate around 2.65% after the confirmation of a new increase in the key rates of the ECB last week.
Two Main Scenarios
In this context, several scenarios can be envisaged for the Banque de France’s proposal. The first, the most desirable for French savers, would be to round up the next Livret A and LDDS rates to 4%. The second, a priori the most probable, would be to further reduce the theoretical rate to 3.50% (or even 3.75%), knowing that François Villeroy de Galhau had considered it desirable last February that the rate movements of the Livret A and of the LDDS remain “ progressive rather than too volatile, and this on the upside as a potentially down day “.
What to expect in 2024?
Because we must not forget that the rate of the two passbooks will be reassessed again 6 months later, in February 2024. With inflation excluding tobacco which could drop to 4.4% in the second half of 2023 (according to the latest projections from the Insee) and interbank rates which will continue to pass on the rise in key rates with a delay, there would probably even be room to push the rate of the two savings accounts to 4% at the beginning of 2024 in this second phase.
Because afterwards, that is to say in the summer of 2024, inflation will certainly have continued to decelerate, which will also perhaps make it possible to reduce the key rates with a downward consequence on the €STR. The Livret A and LDDS rates will then be reduced. But to see if our decision-makers will this time play the game of reducing this drop…