EXCLUSIVE: Portugal Debt Issuance Head: ‘Negative Interest Rates Should Not Become the Standard’

3 June 2021

By David Barwick – Frankfurt (Econostream) – Negative interest rates should not become the norm and a return to positive rates can be seen as a good thing, according to Cristina Casalinho, head of the Portuguese Treasury and Debt Management Agency.

In an interview with Econostream on Friday, Casalinho professed ‘a slightly more optimistic view on rising interest rates.’

‘Despite the fact that the ECB’s purchasing programmes have been in place since 2015 and we’ve gotten used to negative interest rates, these should not be considered as normal’, she said. ‘Negative interest rates should not become the standard.’

A ‘healthier situation’ of higher interest rates, she said, would actually be ‘a very encouraging development, because if it means our economy is recovering and returning to a healthy growth rate that would allow deficits to narrow, tax revenues to increase and the government not to feel so pressured to provide such an ample safety net, this would be very positive.’

Even in the event of rising interest rates, debt affordability would remain relatively favourable ‘and at the same time the primary surplus will also be moving in the right direction’, she said.

In all likelihood, monetary authorities will manage the shift to a new paradigm smoothly, she said, but even if inflation returns with surprising rapidity and markets start pricing in earlier-than-expected policy tightening, Portugal is ‘prepared for this, we have done our homework.’

‘And it would still not be an idiosyncratic, completely unexpected shock, and I still think the return to normality should not be considered unwelcome’, she said. ‘We shouldn’t consider that the times we are living in are normal and should be perpetuated. That’s the main message.’

Portugal enjoys a buffer that will mitigate the impact of higher interest rates, she said, observing by way of example that the 10-year benchmark redeemed this year, which paid a coupon rate close to 4%, was replaced by a new 10-year bond with a coupon rate of 0.3%.

‘So we have a very significant cushion’, she said. ‘And interest rates won’t go up to where they were 10 years ago, they will go up gradually and the market will also adjust progressively. So we will have time to use all the levers that we have available.’