According to the Governor of the Bank of Spain, Pablo Hernández de Cos, in his speech at the XIV Financial Meeting organised by EXPANSIÓN and KPMG, “more than 50% of the effects of interest rate hikes are yet to come and we will see them in the coming quarters”.
The also member of the Governing Council of the ECB has indicated that they have been “surprised” by the rapid transmission of monetary policy, much more intense than in previous episodes. De Cos recalled that, since July last year, the Frankfurt-based institution has raised rates by 450 basis points, to 4.5%, in “the fastest and largest cycle of increases in the history of the Eurosystem”.
The rapid transmission of monetary policy is one of the key elements of the ECB’s analysis and the possibility that the institution will not have to raise interest rates further depends to a large extent on this happening. In the opinion of De Cos, “unlike a few months ago, we no longer have any doubts about how robust this transmission is being”, which would mean that the monetary institution would not have to go further to bring inflation back to the 2% target.
De Cos recalled that monetary policy is now at a point where, if it remains in restrictive territory for a sufficiently long time, the inflation target will be achieved. With this stance, and always pending the evolution of incoming data, the ECB should try to avoid two potential risks: that financing conditions are not tight enough to contain inflation, but also “an excessive tightening that ends up causing unnecessary damage to the economy”.
