ECB’s de Cos: Financing Conditions Should Stay Favourable Until Inflation Outlook Improves

6 July 2021

By David Barwick – FRANKFURT (Econostream) – Financing conditions should remain as favourable as they are now as long as the medium-term inflation outlook doesn’t improve, European Central Bank Governing Council member Pablo Hernández de Cos said Tuesday.

Speaking at the at the Banking Sector Industry Meeting of IESE Business School, de Cos, who heads Banco de España, said that brighter economic prospects in the context of pandemic containment progress had reduced the probability of less favourable outcomes in terms of growth and financial stability.

‘The recovery remains, however, highly dependent on monetary and fiscal support measures’, he said. ‘Monetary policy should continue to ensure favourable financial conditions for all agents in the economy, while fiscal measures should now continue to focus on the sectors and population groups most affected by the crisis.’

The ECB would continue to make quarterly assessments and, ‘to the extent that we don’t see an improvement in medium-term inflation prospects, then financing conditions should evidently remain like those at present’, he said.

Although progress in vaccinating citizens should allow ‘robust growth in the coming quarters’, he said, ‘there are still important elements of uncertainty’ such as the pandemic’s further evolution, private consumption and economic scarring from the crisis.

‘In this context, there is still a risk of a more significant deterioration in credit quality in the future than observed so far, especially in those sectors most affected by the pandemic, and in particular once the support measures are gradually withdrawn’, he cautioned.

De Cos urged that plans be made early to return to a sustainable fiscal situation. Although such plans would only be ‘implemented gradually when the recovery is solid’, their timely creation would make economic policy more credible.