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Mario Centeno says Europe is making ‘big sacrifices’ to fight inflation

Bank of Portugal Governor Mario Centeno praised this Friday that Europe faces “big sacrifices in the fight against inflation”, working harder than other jurisdictions to reach the 2% target.

“Europe faces huge sacrifices in the fight against inflation. This is not the case in other jurisdictions, and we need to be clear about this so that our stakeholders – those at whom we direct our policies – understand us,” said Mario Centeno at the conference “Challenges of Implementing Monetary Policy in a Changing World” (ChaMP “)”, taking place in Frankfurt, Germany.

For Portugal’s central bank governor, it is important that policymakers do not lose people’s trust in the process.

In his speech, Centeno acknowledged that before the inflation crisis, the ECB Council revised its monetary policy to bring inflation closer to 2%, and that it was willing to “temporarily tolerate inflation above 2%.”

“The only thing we didn’t know was that we would be approaching 2% from the top, not from the bottom, because that’s where we were stuck before this whole inflation thing,” the governor said, referring to an eight-year period of very low inflation .

“It was a long process of rising inflation. It took about a year from the time inflation topped 2% to the time it peaked in October 2022,” said Centeno, who felt it was “pretty painful” due to a succession of energy or supply chain shocks .

Regarding actions in the “hard zone”, the Portuguese governor noted that the ECB has done its part.

“The ECB has done its part. I think we should be satisfied with what we have done so far, but we were not alone, and monetary policy transmission channels work in the eurozone because the economic system has helped a lot and because our financial policy system has been much more more restrained than in other jurisdictions,” he noted.

In this sense, Mario Centeno emphasized the influence of the labor market in Europe.

“I sincerely believe that Europe today lives on dividends from the labor market, thanks to the way it has adapted over the years and all these crises. The current reality is that the eurozone is not growing, investment is being made. stagnation for a year and a half,” he complained.

The former Portuguese finance minister also referred to ECB forecasts for the credit-to-GDP ratio to reach “the lowest level ever recorded in the euro area” and that this trend should not change even as inflation approaches 2%. target.

Eurozone inflation slowed by two-tenths in March to 2.4%, according to EU cabinet data, while core inflation, which excludes energy and food as they are more volatile, also fell by two-tenths to 2.9%.

In July 2022, the ECB began a cycle of increasing interest rates to control inflation. More than a year later, in October 2023, he took the first break in this rapid hike cycle, but soon warned that cutting interest rates would still take time due to inflation risks.

Author: Lusa
Source: CM Jornal

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