“Inflation data today and yesterday were positive,” Luis de Guindos said when presenting the latest ECB Financial Stability Report to reporters, but “the victory over inflation is n has not yet been acquired”.
He acknowledged that price developments are following a “right” path.
The consumer price index slowed in May to 5.1% in France and 3.2% in Spain, an annual rate, according to provisional data. The inflation rate in Germany, Europe’s biggest economy, also fell to 6.1% in May in light of falling energy prices, according to provisional figures released on Wednesday.
In Italy, the inflation rate fell to 7.6%, but remains above the European average.
Faced with the continued rise in inflation, the European Central Bank has adopted a policy of sharply rising interest rates since July, which the European Central Bank warned in its semi-annual Financial Stability Report could “reveal weaknesses” in the financial system.
“As we tighten monetary policy to rein in high inflation, it could reveal vulnerabilities” by testing the resilience of businesses, households and governments, de Guindos said.
And all of this is being recorded despite the “slight improvement” in economic conditions and at a time when energy prices have recently fallen.
obvious effects
The European Central Bank has raised its main interest rates by an all-time high of 3.75 percentage points since last July, and observers expect another hike given the target of reducing the inflation at 2%.
“Our mandate is price stability,” recalled de Guindos, which is a condition for ensuring financial stability.
However, the effects of this monetary tightening policy are becoming more and more evident, notably a correction in the real estate markets which could “dominate in chaos” if the rise in interest rates on real estate loans “reduces demand further”.
The European Central Bank report also comes after March’s financial turmoil following bank failures in the United States and the forced takeover of Credit Suisse by UBS.
Eurozone banks, known for their sustainability, are experiencing lower loan volumes and higher funding costs, which may affect their profitability.
Signs of decline can be seen in its overdraft portfolios in commercial real estate, small business and other consumer credit, according to the report.
The report concludes that “the outlook for financial stability in the euro area remains fragile”.
The European Central Bank has said that if the Bank of Japan backs away from its accommodative fiscal policy in the face of continued inflation in that country, it “could affect the decisions of Japanese investors who have broad influence”, especially on the euro area bond markets. , with the risk of withdrawing large sums of money, according to the European Central Bank.
De Guindos said: “Any change in the policy of the European Central Bank, which is obliged to respond to developments in inflation, will have its impact.”
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