De Guindos calls for caution on interest rates
He perceives a risk to stability related to private credit
The ECB will meet next week
(.)
The European Central Bank (ECB) must exercise caution in setting its interest rates, given the great uncertainty linked to the war in Iran, said the institution’s vice president, Luis de Guindos, on Tuesday.
The next monetary policy decision of the ECB is scheduled for Thursday, April 30th. Its officials, including President Christine Lagarde, have recently hinted that the central bank does not yet have enough evidence to raise rates to curb a resurgence of inflation fueled by soaring energy prices.
Inflation in the euro area rose more than initially expected in March, to 2.6% after 1.9% in February, significantly exceeding the ECB’s medium-term target of 2%, according to final data released last week by Eurostat.
Luis de Guindos also called for caution and stated that the ECB should focus on determining whether the rise in oil and gas prices is leading to an increase in other prices.
“I think we need to be cautious, keep a cool head, and analyze the data in a context of great uncertainty,” he said at an event in Spain.
Like his ECB colleagues, he notes that energy prices currently lie between a so-called favorable base scenario and a more unfavorable scenario marked by more significant and lasting repercussions. The ECB’s base scenario only predicts a temporary rise in inflation.
Luis de Guindos also warned against three sources of risk to financial stability in the euro area: high market valuations, perceived lax fiscal policies in some countries, and difficulties in private credit.
The ECB vice president, who will leave his position at the end of next month, is set to present his final financial stability report on May 27th.
(Reporting by Francesco Canepa; French version by Claude Chendjou, editing by Blandine Hénault)
