Tuesday, December 5, 2023

De Cos believes it is “too early” to talk about cutting interest rates

The Governor of the Bank of Spain, Pablo Hernández De Cos believes that with falling energy prices Governments must reduce their support measures to deal with the energy crisis.

In an interview with the “Börsen Zeitung”, the governor defended that governments should resort to fiscal support initiatives “much more selectively” in the event of a new episode such as the rising energy prices in recent years.

In addition, the governor has urged the authorities to do so Undertake structural reforms to strengthen supply. “Fiscal policy for 2024 should be rather restrictive across the euro area,” he reiterated. For Hernández de Cos this is e.g essential to avoid additional price pressure, otherwise this would require an even more forceful response on the part monetary policy.

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And given the “significant price increase since 2021,” the European Central Bank (ECB) tightened monetary policy “rapidly and intensively”., said the Governor of the Bank of Spain. In just one year since then, the reference interest rate (that of the deposit facility) has increased -0.5% to 4%; an unprecedented rise in the history of the euro.

Despite it, The governor has assured that Based on the information available today and using a number of analytical tools, this can be said the level of interest rates what has already been achieved if maintained over a sufficiently long period of time, is compatible with achieving the medium-term inflation target (2%).

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“However, this is a conditional statement. We have reached this conclusion based on today’s information. Uncertainty remains high,” he clarified. Therefore, he has suggested that new disruptions could emerge and the response will depend on their origin and extent, as well as their impact on the inflation outlook.

Supervisory authorities must monitor banks’ business models more closely

When asked about the recent turmoil in the banking sector, Hernández de Cos said there are several “lessons” to be learned from these recent events. First: The governor – who is also chairman of the Basel Committee on Banking Supervision – has highlighted the importance of banking practices in ensuring financial and operational resilience.

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Secondly, Hernández de Cos believes it is essential that regulators Act quickly and effectively to quickly identify and address deficiencies in banking practices. “For example, supervisors must examine a bank’s business model and sustainability much more closely and have the necessary tools to act if they identify an atypical bank,” he emphasized.

Nation World News Desk
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