De Cos urges to avoid general fiscal stimuli that accentuate inflation
The Governor of the Bank of Spain, Pablo Hernandez de Koshas urged governments to avoid the implementation of fiscal stimulus plans in general given the risk that these measures amplify inflationary pressures and aggravate fiscal imbalances, increasing the risks for debt sustainability. Thus, in his speech at the Conference of Mediterranean Central Banks, held in Istanbul, the Spanish central banker considered it “essential” that governments provide support to the most vulnerable households and businessesbut emphasizing that “this support must be temporary and focused”.
“We must avoid a general fiscal stimulus that amplify current inflationary pressuresor a permanent increase in fiscal imbalances that would weigh on the sustainability of the public debt”, defended De Cos, for whom it is extremely important to maintain “coherence between fiscal and monetary policy”. Likewise, beyond the response immediate response to the crisis, the governor has warned that governments must look beyond the current situation and push ahead with structural reforms to increase growth potential in the medium term.
In particular, the governor of the Bank of Spain has underlined, governments should focus on the green transition and rethink the functioning of the energy markets, adding that, in the case of the most indebted countries, they should, with a medium-term perspective, “strengthen the sustainability of their public accounts.” From the perspective of the central banks, De Cos has described as “crucial” to comply with the mandate of guaranteeing price stability. “Our decisive action at the current juncture will support medium-term growth by reducing inflationary pressures and avoiding a dis-anchoring of inflation expectations,” he defended.
In this regard, he underlined that clear and transparent communication by central banks is key to avoiding disruptions in financial markets. The conference, which was held this Monday in Istanbul, was attended by the governors of the central banks of Turkey, Greece, Tunisia, Croatia, Malta and Libyain addition to the governor of the Bank of Spain, as well as senior representatives of the Central Bank of Italy, Morocco and the Organization for Economic Cooperation and Development (OECD).
During the act, it was addressed what role should central banks play to guarantee financial stability threatened by economic, energy and geopolitical tensions, taking into account the dilemma between the attenuation of inflationary pressures and the need to preserve financing conditions favorable to growth after emerging from the Covid-19 crisis.
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