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Interest rates go up, and so do risks











Alarms are already ringing with financial institutions. The Competitiveness Forum does not doubt that March began the beginning of banking turmoil, “which knows no end, because trust takes time to gain, but it is quickly lost,” defending that “this turmoil has an effect equivalent to an increase in interest rates. standard by central banks.

Mario Martins, an analyst at ActivTrades, says that higher interest rates, lower liquidity and uncertainty about new areas of interest in the banking sector, “lead to a decrease in the willingness of banks to extend credit, which is quite normal within the scope of prudent policy management, but the impact cannot be measured in Interest rates rise, they are different processes and effects », he told Nascer do SOL.

Henrique Tomé, an analyst at XTB, tells our newspaper that in the first phase, “where interest rates start to rise, banks tend to take advantage.” But as interest rates continue to rise, “risks increase dramatically in the sector, especially for institutions with less liquidity and exposure to market conditions.” The analyst says that he agrees when it is said that the end is uncertain, “However, recent banking events reminded institutions once again of the importance of defensive mechanisms that they can adopt to mitigate part of the risks related to the current economic situation. ».

The Competitiveness Forum also presented, in a summary of the economic situation, that inflation decreased for the fifth month in a row, despite the rise in core inflation again, from 7.4% to 7.5%, “which should be viewed with concern for the European Central Bank.” But how will the ECB react? “The task of the European Central Bank is not easy at all, largely due to its inaction in 2022, but the hawkish mentality must continue, that is, to continue to raise interest rates, because inflation is the main problem for the European economy at this stage.” ».

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For his part, Henrik Tomi has no doubts that the core inflation rate “is clearly the biggest challenge for the ECB” and says he believes that “in the coming months we will see a decrease in the core inflation rate, although this is also possible. In light of the actual decline in economic activity, and in the long term this should also be reflected in inflation – especially in services, where pressures on prices are more persistent ».

The analyst believes that the European Central Bank has followed the right path by raising interest rates, “and it should continue to do so during the upcoming monetary policy meetings.” Barring that, he says, on the other hand, “interest rate increases do not have an immediate impact on the real economy, so it should take some time to feel the effects of sharp interest rate increases.”

Should the ECB contain inflation control policy?

When asked if the ECB should revise its inflation control policy, since everything indicates that it should continue to raise interest rates, the two analysts said that this is the best way.

«The only way to adjust the rise in prices at this stage is to control consumption, and the best option for the central bank is to raise interest rates, not least because governments will then have to implement consumption stimulus packages, including PRR, which eases consumption. The effect of higher interest rates,” says an ActivTrades analyst.

Henrique Tomé recalls that inflation in Europe remains at high levels and, therefore, “it is imperative that the European Central Bank continues to increase interest rates”. But he believes that in the upcoming meetings “the central bank may begin to limit the rise in interest rates, as has already happened with other central banks.”

Reducing VAT does not help reduce inflation
Regarding the value-added tax cut, the forum led by Pedro Ferraz da Costa argues that it “should not help much in reducing Portuguese inflation, either because the prices of food products are already slowing down, or because it should generate a substitution effect. It has strong conditions to counter the tax impact ».

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An opinion shared by Mario Martins when he guarantees that “the benign effect on inflation must be small, due to the many shortcomings of the system that make it possible for retailers to benefit from not fully reversing the decline, as well as the fact that the general decline for all citizens covers a large part of the recipients who do not need that assistance, which leads to lower tax revenues, which will be filled with less support for those who actually need more support ».

Henrique Tomé also agrees with the Competitiveness Forum and argues that these measures “end up violating all the monetary policies adopted by the European Central Bank to stop rising prices”, arguing that “it is necessary to realize that the decline in economic activity in order to rein in inflation, even if it is punished Families, is part of the process that we will all unfortunately have to “push”. But the less privileged social classes, yes, must be supported by the state ».

Inflation continues to slow
But the fact is that inflation has slowed down – not only in our country, but also in the eurozone and in the countries of the Organization for Economic Co-operation and Development.

And in Portugal, it fell for the fifth consecutive month in March and amounted to 7.4%. According to the National Institute of Statistics (INE), this slowdown is partly explained by “the primary impact from the increase in fuel and food prices, validated in March 2022”.
Asked what is expected from now on in terms of inflation, Mario Martins said that it is expected to remain “at a very high level”, which will force the ECB to “maintain the course of restrictive monetary policy”.

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Henrik Tomi argues that inflation “has slowed when compared to year-on-year and to some extent reflects the decline in economic activity, which has been affected by current monetary policies,” adding that over time “inflationary pressures should slow down. Moreover, bearing in mind that the European Central Bank must continue to raise interest rates and that the effect of these increases is only apparent in the medium and long term ».

Portugal is one of the poorest countries in the European Union
The Competitiveness Forum’s summary points to other data: Last year, Portugal was the sixth poorest of the 27 EU member states. And he shoots: «The most dangerous thing is the path of national difference, which is a rare phenomenon in the European context, which has not been verified except in the cases of Cyprus, Spain and Greece».
And that problem will persist, analysts contacted by Nascer do SOL have called.

It is clear for Mario Martins that “there are no miracles”. And he explains, “As long as we maintain the lack of an efficient economic strategy, shifting the national economy towards products and services that depend on greater added value and not on volume, the path of relative impoverishment is inevitable.”

In turn, Henrique Tome defends that «unfortunately, the commitment to economic growth in Portugal is very small, the private sector continues without incentives and the policies adopted within the country do not promote economic growth at all».

He argues that although Portugal was one of the fastest growing countries last year in the eurozone, “I think the next few years will again be characterized by weaker growth compared to its eurozone peers”.



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