Portugal’s president says ECB should rethink interest rate hike

The president of Portugal said on Thursday that the European Central Bank (ECB) should reconsider the “galloping rise in interest rates”, by the end of this year, which he considered could be the wrong option in the current situation.

“It is worth thinking, and thinking as closely as possible, whether to continue this head-long rush, because it may be the wrong way to solve the problem of inflation and economic growth,” Marcelo Rebelo de Sousa told reporters at the Calouste Gulbenkian Foundation in Lisbon.

He was speaking after hearing a speech by former vice-president of the ECB, Vítor Constâncio, on this issue, at an initiative of the Order of Economists, and the president expressed his hope that “in a month’s time, this concern will have reached European decision makers, particularly the ECB”.

He went on to say that “increasing interest rates at this rate to cure the patient, may end up harming his health. That’s what deserves to be thought about next month, in the coming months, before we get to 2023,” he stressed.

Asked if the government’s proposed 2023 budget, voted on today in parliament, has sufficient measures to help families, Marcelo Rebelo de Sousa replied that “the prime minister said during the debate that there is room to rethink what has been announced so far”.

“Let’s wait, it’s another month,” he advised, referring to the overall final vote, scheduled for November 25.

Asked if he fears a recession scenario, the President of the Republic replied, “I don’t necessarily think so.”

Then, referring again to Vítor Constâncio’s intervention, he mentioned that the former Finance Minister predicts that “inflation will tend to fall from a certain point next year and that the continued rise in interest rates may have consequences and lead the economies of Europe to recessions”.

“By making that analysis with numbers, with the experience you had of the ‘troika’ crisis, you left a lot of people wondering about what is the moment when this galloping rise in interest rates doesn’t have to be reflected upon and pondered whether it is the right way to go,” he added.

As for the renegotiation of interest rates on housing loans, Marcelo Rebelo de Sousa stressed that the intention announced by the Government is to legislate “alongside the Budget, although it may imply issues in the Budget”.

According to the head of state, “all European governments are monitoring central bank intervention and the consequences it has on interest rate rises and people’s lives” and “that is why it was worth taking the problem at the beginning”.

“How is it, are you always going to maintain rises of 0.75 or quite high rises, one after the other? Until what point, and with what consequences? It’s worth thinking about,” he insisted.

The President of the Republic, who did not publicly announce his participation in this initiative commemorating the 25th anniversary of the Order of Economists, was the last to speak at the end of the session.

In a speech lasting more than half an hour, largely dedicated to praising Vítor Constâncio’s speech, he framed the decisions of the United States Federal Reserve and those of the European Central Bank (ECB) as possibly influenced by “political and electoral cycles”.

“Experts in the field of political analysis have now said that one of the possible reasons for the Fed’s behaviour would have been to anticipate the recession, in time for there to be signs of recovery before the elections in two years time, that would be the goal”, he pointed out.

“But the same could be said in Europe: there are European political and electoral cycles, starting with the European elections of 2024, in May, but before that in some countries, there will be elections next year,” Marcelo Rebelo de Sousa continued.

The head of state questioned, taking into account “the time lag of the ECB’s intervention in relation to the Federal Reserve, if it continues to raise interest rates, what consequences this will or will not have for the economic situation in 2023 and 2024, and what this will also mean from the point of view of the socio-political potentiation of economic effects”.