Among the efforts to address the health crisis, full cooperation between the authorities and the private sector stands out above the rest. Banks have facilitated the transmission of the monetary authority’s expansionary monetary measures and have been instrumental in implementing the economic measures to mitigate the impact of the pandemic. While we find a cure for the virus, it is essential not to let our guard down and to continue supporting families and businesses.
Expansionary economic policy must continue to help the most vulnerable in the short term, but in a way that does not create new risks that do not currently exist. An assessment of the appropriateness of measures points to a greater role for fiscal policy in the short and medium term, and for supply-side measures in the medium and long term. Naturally, financial conditions must remain expansionary for as long as necessary.
The President of the European Central Bank warned a few days ago about the limited additional room for manoeuvre of traditional monetary policy instruments. Moving into negative interest rate territory entails risks to financial stability and distortions in the transmission of monetary policy, against benefits that are increasingly being questioned, Christine Lagarde acknowledged. She also noted the limits of conventional monetary policy in the face of the risks posed by climate change. All of this explains the greater use during the crisis of non-conventional measures, such as asset purchases in the market, also defined as temporary.
An appropriate policy mix and the necessary cooperation of the private sector are the best foundation on which to rebuild the new post-COVID economy.
José Luis Martínez Campuzano, Spokesperson for the Spanish Banking Association
