The ECB will continue to raise rates despite the slowdown expected for the eurozone

The inflation rate will remain above the ECB's target for the next few years

MADRID, 14 Oct. (EUROPA PRESS) -

The Governing Council of the European Central Bank (ECB) will continue to raise interest rates at its forthcoming meetings in the face of the prospect that inflation will remain above target for an extended period and despite the significant slowdown in activity expected in the euro zone in the coming months and in 2023.

"We will continue on our path of normalizing monetary policy," said Christine Lagarde, president of the ECB, at the meeting of the International Monetary and Financial Committee, the main advisory committee of the International Monetary Fund (IMF) and chaired by the vice president Prime Minister and Minister of Economic Affairs and Digital Transformation, Nadia Calviño.

"The Governing Council of the ECB expects to increase interest rates further in the next meetings", the central banker of the euro zone has indicated, since inflation in the euro zone is too high and is likely to remain for above the ECB's target for an extended period.

"As current sources of inflation fade over time and we continue down the path of monetary policy normalization, we expect inflation to decline in coming years but remain above target in 2023 and 2024." ", he pointed out.

Likewise, the president of the ECB has acknowledged that the growth outlook for the euro zone has darkened due to high inflation, the lessening of the effects of the reopening, the weakening of world demand and the fall in confidence.

“These factors are likely to cause a significant slowdown in GDP growth in the euro area in the second half of the year and early 2023,” he warned, indicating that, in addition, the risks to growth are mainly on the downside, particularly because of the economic consequences of the war in Ukraine.

In this way, before the normalization of the monetary policy undertaken by the ECB, the French has urged that the focus of fiscal policy progressively change towards measures that preserve the sustainability of the debt without endangering the recovery in the medium term.

On the other hand, Lagarde has warned that the prospects for financial stability have deteriorated due to the pressure exerted by weaker economic growth, higher inflation and tighter financial conditions on the debt servicing capacity of companies and the homes.

"Despite recent adjustments, financial markets still seem to be pricing in results that could turn out to be too optimistic," he warned, adding that this leaves valuations vulnerable to a number of potential negative surprises, whether from growth, inflation, monetary policy or corporate profitability.

Likewise, Lagarde has pointed out that high vulnerabilities persist in real estate markets, where the potential for a price correction has increased.

Regarding banking, the President of the ECB has reiterated the soundness of the capital levels of the sector in the euro zone, although she has recognized that there is uncertainty about the future profitability of entities as early signs of an increase in credit risk are detected .

"Russia's invasion of Ukraine has aggravated existing macrofinancial vulnerabilities and increased the likelihood that risks will materialize in the near term," he added.

In this regard, he pointed out that the macroprudential authorities of some countries could still increase capital buffers, provided that procyclical effects are avoided in order to preserve the resilience of the banking sector and increase the authorities' room for maneuver in the event of adverse events. .

At the same time, he has urged the authorities to take into account the current obstacles to economic growth and avoid an excessive tightening of credit conditions.