MNI BRIEF: More Than Half Policy Transmission To Come - De Cos

A little more than half of the European Central Bank's hiking cycle is still to be transmitted to the economy, Bank of Spain governor, Pablo Hernandez de Cos, said Monday, noting that that current rate levels should be enough to bring inflation back to 2%, especially given the “significant increase of long-term real interest rates” in the past days.

Monetary transmission in the current hiking cycle is faster than in past episodes and is “surprising us,” de Cos said in a speech in Madrid, adding that credit lending repeatedly surprised to the downside in H1.

He stressed that fiscal policy should have a “negative tone” in 2024 reducing both the deficit and debt ratios, while that the ECB must continue with its data dependent policy approach to keep rates at a sufficiently restrictive level both to avoid insufficient or excessive tightening.