The rise in US rates pressures the ECB to speed up its decision

ECB President Christine Lagarde. / CR

Economy assures that it has "margin" to face the increase in the price of public debt

Jose Maria Waiter

The actions of the central banks of the great economic powers to stop the rampant inflation that has stalked their economies since the end of last year, aggravated by the war in Ukraine, is exerting even more pressure on the only monetary institution that has not yet moved to raise interest rates, the European Central Bank (ECB). All eyes are now focused on the institution chaired by Christine Lagarde after the United States Federal Reserve (FED), this Wednesday night, and just yesterday the Bank of England, continued with their increases in the official price of money.

In the US case, rates increased half a point, in what was the most important increase in the last 22 years in a single day, to around 0.75% and 1%. For its part, the English bank also raised its official rate to 1%. But the ECB is still at a crossroads from which it does not know how to get out: it is about fighting inflation, in the euro zone it closed April at 7.5%, but at the same time avoiding a derailment of the economies in the face of signs of GDP slack in the first quarter of the year, with meager growth of 0.3%.

After the last meeting of the Governing Council of the ECB, on April 14, Lagarde advanced that the net purchases of debt will end in all probability in the third quarter, although he did not want to specify the moment for the rate hike. "It could be a week or months later," he said, who in any case did not want to commit to setting a date for a rate hike and also warned of the enormous uncertainty for growth that the war in Ukraine entails. A few days later, the Vice President of the ECB, 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 of the ECB, Fabio Panetta, pointed out that the European economy is "de facto" in a situation of stagnation, which accentuates the need for the monetary institution to act prudently. For this reason, he has insisted that we must "be cautious" in the face of a rate hike.

The doubt among investors is whether there will be several rate hikes in the euro zone in the second half or just one. But the trend, and this is what all the indicators estimate, is that the price of money will say goodbye to the current levels. In fact, the tension is already reflected in public debt. The 10-year Spanish bond is trading at around 2%, when just four months ago it was at 0.5%. For its part, the Euribor closed April at 0%, half a point higher than a year earlier.

With these trends, everything seems to indicate that the cost of financing will be more expensive from the second half of the year. And this implies that the new mortgages that are constituted will be more expensive, such as credits and consumer loans.

Faced with this situation, the economic vice president, Nadia Calviño, considers that Spain “has room to face this progressive rise in rates”, referring to the decisions that the ECB may take in the euro zone starting in the summer. Calviño recalled that from the public sector "we have absorbed the debt of the private sector in the pandemic, which has provided a cushion to now face rate hikes", referring to families and companies.

In addition, he has indicated that the latest macroeconomic forecasts, sent to Brussels last week, "take into account the average rates of the debt issued." "Although rates rise, the average interest rate on Spanish debt will continue to fall," said the vice president, who recalled that the 140,000 million euros issued in public debt to support during the pandemic, means that now society have a "cushion" in the face of a rise in interest rates that practically the entire market takes for granted.

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