IGCP: “Portugal ready for interest rates increase”

 In News, Public debt, Public Financing

The economist who runs Portugal’s public debt management agency IGCP, Cristina Casalinho, says that Portugal is “prepared to face an increase in interest rates”.

The interest on Portuguese 10-year sovereigns has risen above 2% which has not happened since 2018.
The differential compared to the benchmark interest on German bonds has once again widened above 100 base points.
Portugal is paying double this year to obtain finance on the international money lending markets.
It means that the era of cheap loans is about to end as investors expect a U-turn in European Central Bank (ECB) policy in a bid to keep inflation under control.
“We are prepared for an increase in interest rates” Cristina Casalinho, president of the agency which manages Portugal’s public debt.
With inflation at 7.5%, the ECB has little choice but to increase interest rates to control price rises caused by the after-effects of the Covid-19 pandemic, the easing up of bond purchases, the massive amounts borrowed to regenerate the EU’s economy, and now the current energy crisis resulting from the Russia-Ukraine war.
The international money markets expect the bank to set the direct interest rate on deposits at zero (compared to -0.50% now).
For governments which have benefitted from very low costs of borrowing in recent years, the new cycle ushers in challenging times, particularly for countries like Portugal which have a high level of public borrowing.
Debt had fall in relation to GDP to 127% at the end of March. Nevertheless, it stands at €276Bn. Cristina Casalinho says that the country is prepared for an increase in interest rates, given that in recent years it has increased the average maturity time for medium and long term bond issues so as to benefit from lower interest rates for as long a period as possible”, the economist told ECO.
According to the IGCP the average maturity on debt has increased from six years to eight years over the past decade, conferring a greater degree of protection for Portugal as it faces higher borrowing costs.
In 2013 Portugal had to pay €7.5Bn just to pay the interest yields on borrowing to investors. In 2022, the State Budget expects to pay €6.2Bn to service the public debt, around 2.2% of GDP (below the 2.4% in 2021).