Mário Centeno speaks out ahead of key policy meeting
Mário Centeno, governor of the Bank of Portugal and former Socialist finance minister, has warned today of the risk of “doing too much” when it comes to monetary policies to bring down inflation.
In yet another thinly-veiled criticism of measures adopted by the European Central Bank, Mr Centeno argued that the situation today ‘calls for policies focused on the stabilisation function’, writes Lusa.
In an analysis entitled “policy crossroads”, Mr Centeno relects on the economic challenges facing Portugal and the eurozone, and on the path of policies to follow – a week before the European Central Bank’s Governing Council is due to meet again, and will be considering yet another hike in interest rates.
President Marcelo has already voiced his fears over what may come. Now, Portugal’s central bank governor is voicing his.
He writes: “In the monetary dimension, the risk of ‘doing too much’ is beginning to be material; inflation has fallen faster than it rose, and the economy is adjusting to the new financial conditions.
“Inflation should approach 2%” (the ECB’s Holy Grail) since “in the absence of new shocks and with the materialisation of the transmission of monetary policy to the economy, the medium-term objective is within our reach on the near horizon,” he adds, stressing that in the meantime “the (external) economic environment shows signs of deceleration and even recessionary dimensions. Economic indicators for the euro area revealed in July are not encouraging, but the scenario in which we avoid a recession is still at the centre of our assessments”.
In support of his argument, Mr Centeno points to trends in the eurozone’s main indicators in July: lending eased, there was the largest contraction in the private sector, consumer confidence improved, investor confidence worsened, activity in the services sector weakened and almost stagnated, the recession worsened in manufacturing, pressure on prices cooled, and employment slowed to a minimum.
Mário Centeno said that once “convergence towards price stability has been ensured, monetary policy should follow a predictable path of lowering interest rates”, albeit “far from the days of zero or even negative interest rates”.
On the budgetary side, “balance must be preserved in order to reduce debt in a context of low inflation and higher interest rates”.
In Lusa’s words, Mr Centeno “recalled the European response to the pandemic to argue that “this sublime moment in European construction must be followed up in the response to be given at yet another crossroads.
“Economic policies must continue to fight the causes of inflation because it is a symptom, minimising the risks of destabilisation for citizens and laying the foundations for a new economic cycle.
“At this difficult time for geopolitics and the economy, the stability and predictability of policies are our greatest asset.”
Interventions like these show how much pressure there must be behind the scenes on decision makers NOT to throw millions of struggling families across Europe into more financial uncertainty for the sake of a ‘policy target’ that could end up being ‘medicine’ that leaves an already ailing patient completely poleaxed.
Source material: LUSA