ECB’s Centeno: Hiking Cycle Desirable, But Must Mitigate Associated Risks

7 July 2022

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Mario Centeno on Thursday endorsed a cycle of interest rate hikes but urged that risks associated with policy tightening be addressed.

In remarks made virtually at the 26th Economist Government Roundtable, Centeno, who heads Banco de Portugal, said, ‘Monetary policy will act gradually and flexibly. We will use all instruments in our toolkit to guarantee price stability in a context of financial stability and a proper functioning of the transmission mechanisms across the euro area.’

‘A cycle of interest rates increases is desirable, but brings about risks that should be mitigated’, he said.

The increased burden faced by borrowers implied higher credit risk, he said, but banks should have taken this into account already.

‘The lessons of the past are well learned and we are seeing a desirable degree of caution in the banking sector’, he said.

Higher interest rates would lead to greater net interest income for banks in the short run, he said, while in the medium term this effect ‘can more than offset the negative impacts of market risk and of impairments for credit risk.’

‘Overall, better prospects for the banking sector’, he said.