Economy assures it has “margin” to cope with rising public debt price
The actions of the central banks of the major economic powers to stem the rampant inflation that has plagued their economies since late last year, exacerbated by the war in Ukraine, are putting even more pressure on the only monetary institution is not yet moving to raise interest rates, the European Central Bank (ECB). All eyes are now on the institution chaired by Christine Lagarde after the US Federal Reserve (FED), this Wednesday evening, and yesterday the Bank of England, continued their increases in the official price of money.
In the case of the US, interest rates rose half a point, which was the most significant single-day increase in the past 22 years, to about 0.75% and 1%. The English bank, for its part, also raised its official interest rate to 1%. But the ECB is still at a crossroads that it does not know how to get out of: it is about fighting inflation, in the eurozone it closed in April at 7.5%, but at the same time we avoid a slippage of economies in the face of weak GDP in the first quarter of the year, with a meager 0.3% growth.
After the last meeting of the ECB’s Governing Council on April 14, Lagarde said net debt purchases are likely to end in the third quarter, though he declined to specify the timing of the rate hike. “It could be a week or months later,” he said, who in any case declined to commit to a rate hike date and warned of the huge growth uncertainty posed by the war in Ukraine. A few days later, the ECB’s vice president, Luis de Guindos, acknowledged that a rate hike is possible in July, coinciding with the end of net debt purchases.
Just yesterday, the Italian executive board of the ECB, Fabio Panetta, pointed out that the European economy is “de facto” in a situation of stagnation, highlighting the need for the monetary institution to act prudently. For this reason, he has urged that we should be “cautious” in the face of a rate hike.
The doubt among investors is whether there will be several rate hikes in the eurozone in the second half of the year or just one. But the trend, and this is what all the indicators estimate, is that the cash price will say goodbye to the current levels. In fact, the tension is already reflected in government debt. The 10-year Spanish bond is trading at around 2%, while it was still at 0.5% four months ago. For its part, the Euribor closed at 0% in April, half a point higher than a year earlier.
With these trends, everything seems to indicate that financing costs will become more expensive from the second half of the year. And this means that the new mortgages that are taken out will become more expensive, such as credit and consumer loans.
Faced with this situation, the economic vice president, Nadia Calviño, believes that Spain has “room to cope with this progressive rise in interest rates”, referring to the decisions the ECB can take in the eurozone from the summer. Calviño recalled that of the public sector, “we absorbed private sector debt during the pandemic, which has provided a cushion to face rate hikes now,” referring to households and businesses.
In addition, he has indicated that the latest macroeconomic forecasts, sent to Brussels last week, “take into account the average interest rates of the debt issued”. “While interest rates are rising, the average interest rate on Spain’s debt will continue to fall,” said the vice president, recalling that the €140,000 million spent on public debt to support during the pandemic means society is now “pillow” has in the face of a rise in interest rates that virtually the entire market takes for granted.
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
