He says that the war in the Middle East is now “the main determining factor” for economic developments and inflation in the euro area
SANTA CRUZ DE TENERIFE, Nov. 2 (EUROPA PRESS) –
The governor of the Bank of Spain, Pablo Hernández de Cos, has assured that interest rates will be maintained for a period “long enough” to return inflation to its 2% objective, and that, for the moment, “it is absolutely premature” to talk about lowering interest rates.
This was stated by Hernández de Cos during a conference on the ‘Economic Situation and Prospects of the European Monetary Union and Monetary Policy Decisions of the European Central Bank’ organized by the Chamber of Commerce of Santa Cruz de Tenerife.
Likewise, during his speech, the governor of the Bank of Spain pointed out that the possible extension of the war in the Middle East remains “the main condition” of economic developments and inflation in the euro area and that, in the event of If it were to materialize, it would constitute a new negative supply disturbance, above all, due to the increase in the prices of energy raw materials.
However, he has assured that the reaction of monetary policy would be different from that caused by the war in Ukraine, since, in the medium term, the effects on inflation, if this conflict materialized, could be “very lower.”
For Hernández de Cos, we are in a different situation than when the war in Ukraine began, since monetary policy now maintains a “clearly restrictive” orientation and the activity of the euro area is now ” very weak”.
“In order for monetary policy to have this different reaction to the eventual materialization of this new negative supply shock, it would be crucial for inflation expectations in the medium term to remain anchored at 2% and the second round effects on wages to be limited. and inflation,” he indicated.
DOWNWARD RISKS ON ECONOMIC GROWTH
On the other hand, Hernández de Cos has pointed out that, since the meeting of the European Central Bank in September – the last one in which a rate increase was made, since in October they were maintained -, a materialization of the downside risks to economic growth in the euro area.
Likewise, it has pointed to an evolution similar to that expected in relation to inflation, although the risks for the future remain “balanced.”
On the other hand, it has pointed out a new tightening of financial conditions, greater than expected, which confirms a “very strong” transmission of the ECB’s monetary policy. Even so, he has warned that a “significant” part of the translation of the tightening of monetary policy is still pending.
