Hernández de Cos (Bank of Spain) foresees high rates "for a long time"

He predicts that the effects of monetary policy will be perceived this year

BARCELONA, 22 ()

The Governor of the Bank of Spain, Pablo Hernández de Cos, has predicted that high interest rates will continue “for a long time” to achieve the objective of inflation standing at 2%.

He said it this Monday during his speech ‘The economic situation and monetary policy in Europe’ organized by Cercle Financer and promoted by the Societat Econòmica Barcelonesa d’Amics del País (Sebap), which was held at the Barcelona headquarters of the La Caixa Foundation.

Present were the president of Cercle Financer, Isidre Fainé; the president of Sebap, Miquel Roca, and the CEO of CaixaBank, Gonzálo Gortázar, among others.

De Cos has explained that the tightening of monetary policy is “already well advanced”, although he has pointed out that with the current information new increases are still expected in the next meetings of the European Central Bank (ECB).

He has indicated that the lag in monetary policy will cause the expected impact of the rate hike to take place this year and the following, “with the peak of this impact in 2024”.

In any case, he recalled that future decisions will depend on current economic data due to a context “with as much uncertainty as the current one”.

SLOWER TRANSMISSION

De Cos explained that the transmission of monetary policy presents differences with previous episodes and that some aspects “would point to a slower transmission than in the past”.

He recalled that the last rate hike was 20 years ago and that since then the economy has undergone changes that have had an impact on the transmission mechanism, and that the current cycle is preceded by a long period of expansive monetary policy with unconventional measures, which will generate a tightening of financial conditions “for which there are no precedents.”

The high pace of rate hikes by the ECB is also unprecedented, which, according to the governor of the Bank of Spain, “could generate non-linear effects on the economy.”

One of the aspects pointed out by Hernández de Cos is the slowness in the remuneration of retail deposits, which has explained why the remuneration of said deposits was higher than market interest rates during the period of negative interest rates and for the plenty of existing liquidity.

JUNE

Looking ahead to the meeting of the ECB’s governing council in June, de Cos pointed out that there are “different sources of uncertainty” that will condition macroeconomic developments in the coming quarters.

The first factor is doubts about the continuity of the savings cushion due to the pandemic and the rebound in demand that occurred at the end of the pandemic.

He has also pointed to the war in Ukraine as a source of uncertainty and doubts about the evolution of the world economy in the coming months, as well as “new outbreaks of instability” in banking, such as the bankruptcy of Silicon Valley Bank or the fall of Credit Suisse. .

Lastly, it has warned that the end of the fiscal policies approved in order to curb inflation could drive price rises, especially in 2024, and has called for public support measures to be temporary and focus on the most vulnerable groups. .