President calls on ECB to ‘think carefully’ in raising interest rates

  • Lusa
  • 28 September 2022

The head of state called for a "balance" in order "to avoid stagnation with inflation, as there was in the 1970s" in Europe and elsewhere.

Portugal’s president, Marcelo Rebelo de Sousa, has called on the European Central Bank (ECB) to seek a balance and “think very carefully” in raising interest rates, in order to avoid economic stagnation.

Speaking to journalists in Napa Valley, California, late on Tuesday, the head of state expanded on his words of Sunday night about the actions of the ECB under its president, Christine Lagarde, noting that it was having “a kind of reaction along the lines of the American guideline” to the current situation of rising prices.

“The American guideline is very clear, which is: even if it costs us the growth of the economy, we are going to give priority, with massive interest rate hikes, to controlling inflation,” he said. “And America has an enormous advantage in this: it can produce as many dollars as it wants.”

De Sousa added that “the Americans can afford this type of reality”, but “other economic areas”, such as the European Union and in particular the countries that share the euro as their currency “have to think about the consequences of stagnation” when dealing with inflation.

In this framework, the head of state called for a “balance” in order “to avoid stagnation with inflation, as there was in the 1970s” in Europe and elsewhere.

“It is understandable that the ECB has felt the need to respond to the rise in the price level,” he said. “The message has to be calibrated, as is often said. After a period in which the concern was to avoid interest rate rises, we have to think very carefully about the rise to be introduced, because that rise, if it is very, very steep, in economies that have not yet taken off, may delay the start.”

There was, he stressed, a balance to be found here.

As for Portugal, the president reiterated that there are “very good economic growth figures so far in the year 2022” but also “the awareness that they are not repeatable in 2023.

“The question is to know where we stand in 2023,” he went on. “And what no one can answer is where will inflation also be between the end of 2022 and 2023.”

According to de Sousa, “this balance, which was already the headache of the 1970s, between controlling the price level, which affects families and businesses, and on the other hand avoiding [a situation in which] the economy suddenly falls too much and stops growing suddenly or more sharply, is the great challenge for regulators, for governments, for everyone.”