The government promises to work to mitigate the impact of rising interest rates

This Friday, the government pledged to work, especially within the 2024 government budget, to “reduce the impact” of rising interest rates on families and businesses following a new increase adopted by the European Central Bank (ECB).

“We hope and will work to reduce these impacts on the lives of citizens, companies and the economic life of the country, and this is the direction we are working now, as well as in the state budget,” said Finance Minister, Fernando Medina.

Speaking to Portuguese journalists at the entrance to an informal meeting of European finance ministers in the Spanish city of Santiago de Compostela as part of the Spanish Presidency of the Council of the EU, a government official admitted that “it is a fact that this ECB decision represents a very important […] in fact, growth is expected to slow as a result of anti-inflation policies.”

“I had the opportunity to say that at this point, raising interest rates would be a greater risk to the progress of the economy than not raising them,” he said.

Fernando Medina said tight monetary policy and its impact “will be one of the fundamental issues of our debates and meetings.” [sobre] How will this recent central bank decision affect the progress of the economy in 2023, but especially in 2024.”

The stance comes as the ECB on Thursday announced a fresh 25 basis point hike to its three key interest rates, the same as at its previous meeting, placing the deposit rate at its highest level in euro zone history.

In a statement issued after the meeting of the Governing Council on monetary policy, the ECB said that the interest rate applicable to main refinancing operations, as well as the interest rates applicable to the margin lending facility and the deposit facility, will be increased to 4.50%, 4 .75% and 4.00% respectively, effective September 20, 2023.

It was the 10th straight rate hike by the central bank, which has raised interest rates by 450 basis points since July last year, the fastest growth cycle in euro zone history.

Inflation rates have fallen in recent months from historic highs due to the economic reopening from the Covid-19 pandemic, the energy crisis and the economic fallout from the war in Ukraine, but are still above the 2% target. ECB for price stability.

To achieve this, the ECB tightened monetary policy with successive interest rate hikes, now at a slower pace, leading to lower consumption.

Faced with this scenario, eurozone finance ministers will discuss the macroeconomic context in the single currency area this Friday and should press for commitments to fiscal prudence.