Pablo Hernández de Cos, Governor of the Bank of Spain, of the European Central Bank (ECB) continue to raise interest rates “significantly” “at a steady pace” at subsequent meetings. The agency’s goal is to achieve “restrictive enough levels” to keep inflation steady. 2% target set by the organization in the medium term. Only in this way, he adds, will soften demand and reduce inflation and act as a hedge. De Cos’ remarks at the 13th Spanish Investors Day (SID) Forum coincide with the latest statements by ECB President Christine Lagarde, who has committed to continue increasing rates at a “constant pace”.
In the last monetary meeting held by the central bank in December 2022, interest rates were increased by 50 basis points to 2.5 percent, while inflation in the euro area reached 9.2 percent after exceeding 10 percent in the previous two months. At the same time, core inflation was 5.2%, a record level for the region and two-tenths higher than observed in November. In this sense, the head of the Bank of Spain, “the expected inflation reduction is gradual and stands at 3.4% in 2024 – vs. 2.3% expected in September- and 2.3% in 2025In both cases, inflation will remain above the ECB’s 2% target in the medium term, so the increase in rates is expected to continue through at least 2025 if forecasts are met.
This is because exponential increase energy prices and eatA new one has been added to the disruptions in supply chains at the end of 2021 and 2022, and to the war that started in Ukraine in March. Demand factors linked to the reopening of the world economy due to the lifting of restrictions due to the pandemic would also play a role “along with the problems. euro depreciationIn general, it is estimated that 75% of the increase in inflation in 2022 is due to the direct and indirect effects of the increase in energy and food prices.
According to the ECB’s inflation forecasts, it is assumed that “a significant part of the accumulated increase in production costs, albeit imperfectly, is transferred to final selling prices”, but may increase again to “higher than” in the medium term. -expected wage increases” or “persistent rise in inflation expectations” above 2%. reduction in energy costs or further weakening of demand It will reduce inflationary pressures, something that has been happening since December.
End of incentive plan
De Cos also reminded the process in his speech. End of ECB incentive scheme: “From the beginning of March 2023, Eurosystem will completely stop reinvesting principal of securities that mature under the APP asset purchase program.” The process will be carried out gradually from 15,000 million euros per month until the end of the second quarter. By the time this first part of the plan comes to an end, about half of the principal of APP portfolio values will remain, and it will be in February when they announce detailed parameters to eliminate the stimulus completely, “a reduction in pace anyway”. to be measured and predictable”.
On the other hand, the head of the Bank of Spain repeated this. In March 2022, the ECB ended net purchases under the Pandemic Emergency Purchase Programme. (PEPP) and that they will reinvest the principal of purchased securities maturing by at least the end of 2024.
Source: Informacion
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