The vice-president of the European Central Bank, Luis de Guindos, recognized this Wednesday that the rise in interest rates and the increase in prices are going to cause households to have less disposable income and, with it, greater problems to face the debts. For this reason, he has asked the banks to increase provisions because delinquency "is going to rise."
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Guindos has intervened by videoconference in the UIMP summer courses organized by the Association of Economic Information Journalists. In this same forum, bankers such as César González Bueno, CEO of Sabadell, had assured that the rate hike is a "tailwind" and in the balance between the positive and negative impacts of it, the balance is good for the banks.
The former Minister of Economy in Spain has recognized that the rise in rates is "positive in the short term" for banks to revalue the assets they have at variable rates, which are the majority. However, he has pointed out that there are other less positive aspects for the evolution of the banking business. He thus he has pointed out that it can affect consumption decisions, the request for financing and the ability of households and companies to repay their debts.
"It is important to look a little further and not be blinded by the illusion of the rise in short-term rates," he warned the banks. "You are going to find yourself with an economic slowdown and with clients with more difficulties to take on debt, surely delinquencies are going to rise", he insisted. "The economic slowdown and high inflation reduce disposable income," he emphasized.
For this reason, Guindos has defended that with all these aspects on the table, the affirmation that the rise in rates is positive for the banks "is nuanced". “It is important that they are prudent and that they continue with high levels of provisions”, Guindos pointed out from Frankfurt. “We will always ask for caution from the supervisor”, he has insisted.
Guindos has faced the new change in the ECB's monetary policy and the announcement, after an extraordinary meeting, of a program against fragmentation in the euro zone. The announcement of the rise in interest rates and the end of the purchase policy two weeks ago raised the risk premiums of countries such as Spain and Italy and the ECB had to come out again to clarify that it will make the reinvestment of debt purchases more flexible to benefit countries with major debt problems.
Guindos has acknowledged that fragmentation is a "very important concern" for the ECB. Guindos explained that this "unwanted" fragmentation that is not caused by economic factors can lead to a Spanish family, more solvent than another in Germany, having to pay more for its financing. The Vice President of the ECB has been confident that these policies to avoid fragmentation will not affect inflation and that it will give tools to monetary policy to tackle the high rates of inflation and bring it closer to the 2% target in the "medium term".
Guindos has avoided confirming that the anti-fragmentation policies will allow the ECB to raise interest rates higher than those announced. “In September we will assess with the data that is available then,” assured the ECB vice president. The former minister has defended that in the central scenario with which they work, inflation will remain high in the coming months but will begin to soften "around the summer", although it will not fall below 6%.