Acknowledges that the likelihood of a recession in Europe has increased and points to a review of banks' provisioning practices
MADRID, 1 Nov. (EUROPA PRESS) -
The president of the European Central Bank, Christine Lagarde, has confirmed that the end of interest rate hikes is not yet here and that the institution expects to continue raising interest rates in the next monetary policy meetings, with a view to in reaching the mid-term target of 2% in a timely manner.
"Since July we have increased rates by 200 basis points, the largest increase in the history of the euro. But we are not done yet," Lagarde confirmed in an interview published by the European Central Bank. In its last monetary policy meeting, the Governing Council of the ECB decided to raise interest rates again by 75 basis points, so that the interest rate for its refinancing operations will be 2%, while the rate deposit will reach 1.50% and the loan facility, 2.25%.
The president today insisted on the message she offered last Thursday to undertake the new rate hikes "meeting by meeting" and evaluating in each of them the evolution of the macroeconomic and inflation perspectives, among other factors.
In response to voices critical of this contractionary roadmap in monetary policy at a time of possible recession in the euro zone, the highest representative of the monetary institution has recognized that the probability that the Old Continent will enter a recession "has increased " and that uncertainty "remains high".
That is why, defends the president of the ECB, that the issuing institute has to do its job and concentrate on its mandate. "Our mandate is price stability, and we have to comply using all the tools available to us, choosing those that are most appropriate and efficient," Lagarde explained.
Regarding the specific level that rates will reach, Lagarde has stressed that the bank's objective is to converge inflation towards its 2% target in the medium term, a clear objective for which there is still a long way to go. "The destination is clear, and we are not there yet. We will have more rate hikes in the future," said Lagarde, who however did not offer concrete data, given the current "highly uncertain" environment.
Regarding the risks for the real estate market in light of the current environment, Christine Lagarde has recognized that the strong increase in prices is having adverse effects on household disposable income, especially in low-income households. At the same time, she has indicated that employment levels are "remarkably strong" in the euro environment, which has helped shore up household finances so far, along with savings built up during the pandemic and government support.
However, households may be vulnerable to rising debt service costs, especially in countries where residential property is overvalued, debt levels are high, and a larger share of household debt is subject to interest rates. variable interest.
The Frenchwoman has pointed out here that these risks "are best addressed through country-specific policies." "We will provide a more detailed picture later this month when we publish our biannual Financial Stability Review," she added.
In banking matters and on the impact of a possible increase in the number of overdue loans, Lagarde explained that the ECB supervisors have initiated a review of the provisioning practices of the most important banks in the euro zone to ensure that they are prepared. However, he explained that the direct impact of the war on banks in the euro zone has so far been limited, although the environment for business and the economy as a whole has changed.
As to whether this crisis is similar to the one in 2008, Lagarde pointed out that banks are now in a better position, largely because the ECB now has joint banking supervision across the euro area. However, he has insisted: "we must all be attentive and ready to respond to what may happen".
Ultimately, the ECB President has recalled forecasts: We published our latest round of projections in September. Baseline projections showed inflation at 8.1% this year, 5.5% next year and 2.3% in 2024. Growth is expected to slow to 0.9% next year and hit 1, 9% in 2024.