De Guindos asks banks to be ‘cautious’ and not be blinded by the ‘illusion’ of rising rates

De Guindos asks banks to be 'cautious' and not be blinded by the 'illusion' of rising rates


Daniel Knight

Madrid

Updated:

to safeguard

The European Central Bank (ECB) it will raise interest rates in July and do the same in September. A decision which, in theory, benefits financial institutions but which the supervisor does not want to unleash euphoria in the sector. In this sense, Luis de Guindos, vice president of the institution, demanded that the banks be “cautious” in this scenario and not be blinded by the “illusion” of a rate hike. This is how it was pronounced during the XXXIX APIE Seminar, entitled “Sustainability and digitalization: the levers of recovery”, held in Santander.

De Guindos recalled that in July there will be a 25 basis point hike in benchmark rates, but for September this has not yet been defined.

In fact, as he has done these weeks ECBthe vice president pointed out that the rise for the ninth month of the year will depend on inflation data at that time, opening the door for a bigger increase than in July.

Asked if the supervisor would come to consider actions as at the worst of the pandemic to restrict the banks’ dividend or bonuses, sour cherries He pointed out that they are ready for any decision but that they are not in such a scenario. Just as the risk premiums, sometimes so worrying, are not at the level of 2012 in the midst of the financial crisis.

Thus, a few days ago, the ECB convened its Governing Council urgently to inform the markets of its intention to act in the face of the differences in risk premium between the various countries of the euro zone, known as fragmentation, consistent in meaning it depends on where a family or business is located to pay more for the loan.

The supervisor’s objective is to fight against this fragmentation given the fact that risk premiums in Southern Europe, particularly in Spain, Italy, Portugal and Greece, have increased more than expected. This is why a relaxation of the reinvestments of the maturities of the pandemic debt purchase program has been announced to act in the most vulnerable countries, in addition to the launch of the design of a anti-fragmentation planan anti-crisis plan.

In relation to all this, De Guindos stressed that economic policy actions must “generate stability and be very credible”, while urging fiscal policy to accompany monetary policy. Because if the ECB in its central scenario predicts a slowdown in growth, in its adverse scenario it speaks of a recession in 2023, although this is not the one on which the institution is working.

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