Mario Centeno says fighting inflation will cause more damage

The governor of the Bank of Portugal said on Tuesday that fighting inflation would hurt people more before interest rates fell, and on the political crisis he said “instability does not rhyme with growth.”

“Instability, whatever its cause, does not rhyme with economic growth. [não rima] with social stability,” Centeno said at the CNN Portugal summit, which took place in Porto, in an interview with Pedro Santos Guerreiro, and recalled that in the first decade of the 21st century there were three interrupted legislative assemblies.

“If anyone thinks that the economic difficulties we faced at that time had nothing to do with this, let them be disappointed, because they did,” he said, adding that moments of political crisis are “ normal institutional processes” in a democratic country.

Regarding raising interest rates to curb inflation, Centeno believed that it was possible to lower the real interest rate (the gap between the nominal interest rate and inflation), but suggested that interest rates should still remain unchanged. which will increase people’s difficulties.

“The fight against inflation has done a lot of damage and will do some more damage because never before has the European Central Bank raised interest rates so much in such a short period of time,” he said.

According to the governor, such a rapid rise in interest rates did not give economic agents “time to adapt,” which created additional difficulties.

“It worries me and we have to be careful in therapy,” he said.

Centeno also believes that Portugal and the Portuguese economy have made important journeys, highlighting financial stability (noticeable in indicators such as the reduction in the cost of debt and the improvement of Portugal’s rating) and the improvement of the skills of the population.

The former finance minister in the government of António Costa (PS) was in no hurry, above all, to improve skills in Portugal, emphasizing that at the beginning of the century only 40% of young people received secondary education, but today the figure is 85%. (above the eurozone and German average) and believed that any “disruption of this process would be almost a capitulation of economic growth in the medium term.”

As for whether Portugal is retaining young talent when there is much talk about youth emigration, Centeno said that was the case and that the country spent nine months analyzing INE data that was wrong regarding the labor market and “corrected the error” which led to his departure. “almost everyone is 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. Until last week, INE told us that in the second quarter of this year there were 180 fewer of them in Portugal, which was not true. According to the revised version of the INE, the number of graduates will increase by 71 thousand year on year,” says Centeno, an economist specializing in the labor market.

Centeno said that this “quiet revolution” is the “only source of sustainable growth” for the economy and that success requires “patience because it requires work and not putting obstacles in the way,” including companies.

“We can’t raise the bar for companies that want to create jobs and employ these young people,” he said.

The ECB’s target is to achieve inflation of 2% in the medium term, so given the rise in inflation in the eurozone, it decided to raise interest rates. When the ECB changes key interest rates, it affects the entire economy, with the most visible aspects being an increase in bank lending, including home loans.

European Central Bank (ECB) President Christine Lagarde said in Berlin on Tuesday that given the scale of interest rate hikes so far, it will take some time to see their impact on the economy.

“Given the scale of monetary tightening, we can now give it some time to develop,” Lagarde said, speaking on inflation and democracy, at an event organized by the German Finance Ministry.

However, Lagarde considered that “it is not yet time to shout about victory,” despite the decline in inflation in the eurozone.