Worst news for recruiters mortgage loans with variable interest Confirmed by Pablo Hernández de Cos, Governor of the Bank of Spain: Interest rates will stay high “for a long time” at least until inflation hits about 2%.
While Hernández de Cos delivered this firm message in his speech titled “Economic situation and monetary policy in Europe,” hosted by Cercle Financer at the Barcelona offices of the La Caixa Foundation, new increases in the price of money are anticipated at upcoming European Central Bank meetings. [Citation: Bank of Spain]
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The governor also stated that the delay in monetary policy will have the expected effect, with rate increases projected this year and beyond, peaking in 2024. [Citation: Bank of Spain]
In any event, he reminded audiences that future decisions will depend on the latest economic data amid a context described as as uncertain as the current one. [Citation: Bank of Spain]
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slower transmission
De Cos explained that monetary policy transmission differs from earlier periods and that certain factors will point to a slower transmission than in the past. [Citation: Bank of Spain]
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Did you remember that the last rate hike was 20 years ago, and since then the economy has undergone changes that affect the transmission mechanism, with the current cycle preceded by a long period of expansionary monetary policy and unconventional measures that will lead to tighter financial conditions on an unprecedented scale. [Citation: Bank of Spain]
The ECB’s rapid rate increases are also unmatched. According to the head of the Bank of Spain, these moves “could have non-linear effects on the economy.” [Citation: Bank of Spain]
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One point Hernández de Cos emphasizes is the slower repayment pace of retail deposits; this helps explain why returns on these deposits can be higher than market rates during periods of negative rates and ample liquidity. [Citation: Bank of Spain]
June
Looking ahead to the ECB’s governing council meeting in June, de Cos noted that multiple sources of uncertainty will shape macroeconomic developments in the coming quarters. [Citation: Bank of Spain]
The first factor includes doubts about the savings buffer built during the pandemic and the recovery in demand as the crisis eases. [Citation: Bank of Spain]
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He also pointed to geopolitical tensions, including the Ukraine war, as a source of uncertainty for the world economy in the coming months, alongside concerns about new episodes of bank instability such as the bankruptcies of large lenders and the collapse of global financial firms. [Citation: Bank of Spain]
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Finally, he warned that ending fiscal policies designed to curb inflation could support the economy and contribute to price increases in 2024, urging that public support measures be temporary and targeted at the most vulnerable groups. [Citation: Bank of Spain]