The Fed has raised its interest rates again by 0.75 points. This occurred in the same week that the Bank for International Settlements recommended continuing the global rate hikes. The speed of the increase in official interest rates is exceeding analysts’ expectations, just as the duration of the exceptional period of near-zero interest rates—or negative rates, as seen in Europe—also came as a surprise.
For central banks, the worst-case scenario at present is for inflation to become entrenched in the economy, which necessitates timely action. This is true even if it involves “cooling the economy,” as stated by the President of the European Central Bank. However, the magnitude of the economic impact is difficult to quantify in the short term. The European Central Bank itself published a study this week featuring several alternative assessments of the negative impact of rising rates on the European residential market.
The success of monetary policy lies in being preemptive, which is not the case at this time. However, it is more effective at containing inflation than at fighting deflation, as we observed during the years of strong monetary expansion. Nevertheless, current official interest rate levels and market expectations for their future evolution remain very close to historic lows and well below similar periods of high inflation.
Banks are the transmitters of the monetary policy decided by central banks. They were during the long period of zero or negative official interest rates, and they must continue to be so now in the process of returning to normality. In Spain, according to June data, this rate hike has been less significant than at a European level. Furthermore, Spanish banks are prepared to assist the most vulnerable through the Code of Good Practices, a measure that does not exist in Europe.
José Luis Martínez Campuzano, spokesperson for the Spanish Banking Association
