The vice president of the European Central Bank
Luis de Guindos, warned against the consequences of the war in Ukraine on the economy; The estimates are that the next interest rate increase will also be 0.75%. He also warned the banks on the continent to prepare for the possibility of insolvency
Inflation in the euro zone is widening, while growth is weakening as the bloc grapples with the fallout from the war in Ukraine, European Central Bank Vice President Luis de Guindos said.
“We see in the third and fourth quarters a significant slowdown and we may find ourselves with growth rates close to zero” de Guindos said at the conference.
Inflation, which now stands at 9.1%, is expected to jump to 9.6% this month. A record for the single currency block that includes the 19 countries. This is at the same time as a jump in the prices of basic products.
To combat rising borrowing costs, the European Central Bank raised interest rates earlier this month by an unprecedented 0.75% to 1.25%. Just weeks after already raising it by 0.5% and promising to take further steps in the coming months. This is at a time when inflation in the Eurozone has reached its highest rate in almost half a century.
According to the Reuters agency, the estimates at the moment are that the interest rate will be raised in October by another 0.75%-0.5%, and that it will be raised again at each of the European Central Bank meetings that will be held until next spring.
De Guindos gave no hint as to the rate of the next rate hike, saying only that future moves would be “data dependent” and that inflationary pressures had increased recently.
The vice president also said that the banks in the Eurozone will have to prepare to deal with the consequences of the economic slowdown resulting from the war in Ukraine. “The economic slowdown will lead to a potential increase in insolvencies. We are already trying to get the banks to advance their plans because it is undoubtedly going to have an impact,” he said.
“Let’s not be blinded by the short-term impact, the banks will have to increase their provisions,” he added, referring to the short-term bank profits resulting from the higher interest rate.
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