Portugal’s PM calls on the ECB to be prudent when raising interest rates. Stocksak

© Stocksak. FILE PHOTO – Portugal’s Prime Minister Antonio Costa speaks at the European Union leaders summit in Brussels, Belgium, October 20, 2022. REUTERS/Piroschka van de Wouw

By Sergio Goncalves

LISBON, Spain (Stocksak). Portugal’s Prime Minster Antonio Costa has urged European Central Bank (ECB), to be prudent in raising interest rate from an abnormally low level. He does not expect a dramatic increase of household bad loans in his country.

The ECB has been reducing its policy support in the past year and raised rates by a total 125 basis point at its last two meetings. This is the fastest pace of policy tightening that it has seen so far.

Costa stated that he understood the logic behind normalizing monetary policies.

He told journalists that he thought the ECB, in all of its independence, should be prudent when raising interest rates to manage inflation.

The ECB has a target for inflation of 2% in medium-term. However the rate in euro zone was 10% last months.

Costa stated that the ECB should remember that inflation is not caused by increasing money supply or people’s income.

He claimed that inflation was more due in part to supply-side shocks, such as Russia’s war on Ukraine. “This caused the disruption of supply chains which was already present during the post-pandemic period and created an oil crisis.”

Costa stated that homeowners with variable rate home mortgages (which account for more than 90% of the country’s 1.4 million home loans) “should be aware of the fact that interest rates are on a rising trend”.

He’s not worried though, noting that the expected rise in non-performing loan (NPLs), during a pandemic, didn’t materialize.

Portugal’s banks still have scars from a debt crisis, a spike of NPLs and the recession of 2010-13. According to the latest Bank of Portugal data, they have since reduced NPLs to 11.4 billion euros ($11.3 trillion) in June 2022, down from 50 billion euros at their peak in June 2016.

Portugal’s banks had a NPL of 3.4% of total credit in June compared to 17.9% mid-2016. However, this was higher than the European average at 1.95%.

($1 = 1.0133 euros)

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