The governor of the Bank of Portugal said on Tuesday that the fight against inflation will cause more harm to people before interest rates start to fall, and regarding the political crisis, he believed that “instability does not match growth”.
‘Instability, whatever the source, is not compatible with economic growth. [não rima] with social stability,” Centeno said at the CNN Portugal Summit, which took place in Porto, interviewed by Pedro Santos Guerreiro, recalling that in the first decade of the 21st century there were three interrupted legislatures.
“If anyone thinks that the economic difficulties we faced at that time had nothing to do with that, let them be disappointed, because they did.” he said, adding that moments of political crisis are “normal institutional processes” in a democratic country.
Regarding the rise in interest rates, Centeno believed that real interest rates (the difference between nominal interest rates and inflation) will still continue to rise in the coming months, which will aggravate people’s problems. He also hinted that nominal interest rates should have already reached their maximum level, but will remain so for some time.
“The fight against inflation has done and will continue to do a lot of damage, because never before has the European Central Bank raised interest rates so much in such a short time,” he said.
According to the governor, this rapid increase in interest rates did not give economic actors “time to adapt”, creating additional difficulties.
“This is a concern I have and we have to be careful in therapy,” he said.
Centeno also believed that Portugal and the Portuguese economy have made an important journey, emphasizing financial stability (visible in indicators such as the reduction in the cost of debt and the improvement of Portugal’s rating) and the increase of the population’s qualifications.
The former Minister of Finance in the governments of António Costa (PS) took particular time to increase qualifications in Portugal, highlighting that at the beginning of the century only 40% of young people completed secondary education and that today the day 85% (above the Eurozone and Germany average), and believed that any “disruption of this process in the medium term will almost be a capitulation of economic growth”.
Regarding the question of whether Portugal retains young talent, Centeno said if there is a lot of talk about the emigration of young people, this has happened and that the country spent nine months analyzing INE figures that were wrong about the labor market and ‘corrected the error’ which left ‘almost everyone on the psychoanalyst’s couch’.
“Where are our graduates? They are here. Since 2013, the number of graduates in the Portuguese population has increased from 1.3 million to 2.0 million. INE told us until last week that in the second quarter of this year there were less than 180 graduates were in Portugal, this was not the case. According to the corrected version of the INE, the number of graduates will have increased by 71 thousand year-on-year,” said Centeno, an economist specialized in the labor market.
Centeno stated that this “quiet revolution” is the “only source of sustainable growth” for an economy and that to be successful it “requires patience, because it requires work, and should not put obstacles in the way”, including businesses .
“We cannot raise the bar for companies that want to create jobs and employ these young people,” he said.
The ECB’s target is 2% inflation in the medium term. Therefore, in view of the increase in inflation in the eurozone, it has decided to increase interest rates. When the ECB changes key interest rates, this is reflected across the economy, with some of the most visible aspects being the increase in bank lending, including home loans.
Last Monday in Berlin, European Central Bank (ECB) President Christine Lagarde said that given the size of the rate hikes so far, it will take some time to see their impact on the economy.
“Given the extent of our monetary tightening, we can now give it some time to develop,” Lagarde said as he spoke about inflation and democracy at an event organized by the German Finance Ministry.
However, Lagarde opined that “it is not yet time to shout victory”, despite the fall in inflation in the eurozone.
Source: DN
