Bank of Portugal governor supports interest rate hike in June and new mortgage rules

The Governor of the Bank of Portugal (BdP), Álvaro Santos Pereira, has expressed his support for an increase in interest rates at the next monetary policy meeting of the European Central Bank (ECB) in June.

Aligning with the European trend, the Governor stressed, in an interview with the programme Conversa Capital (Antena 1 and business daily Jornal de Negócios), that inflation remains the main concern, even if the conflict in the Middle East ends, since its effects will persist.

“It is important that, when there are possible inflationary spirals, we act quickly,” he stated, arguing that monetary policy should act “sooner rather than later.”

Despite rising prices, Álvaro Santos Pereira dismissed the scenario of stagflation in Portugal, arguing that there is not an economic slowdown, but rather an acceleration of prices.
The Governor also highlighted that the energy shock in Europe would have been worse if it weren’t for investments associated with the development of Artificial Intelligence (AI).

The challenge of increasing wages and savings

Given the current macroeconomic context, the governor admits that the remuneration of savings should be reviewed, critically acknowledging that “the remuneration of savings in this country is very low.” And revealed that, within a few weeks, the three financial regulators will present a joint report focused on strategies to attract long-term savings. He also said that Portugal needed to find a way of increasing salaries.

In the social and labour sphere, the central bank leader delivered clear messages. “We have to find a way to raise wages in this country,” he said, referring specifically to the average salary in the private sector.

The Governor defended the implementation of “flexi-security”—a model inspired by Nordic countries that protects the worker and not the job itself.

On the other hand, in the interview, he criticised the current Portuguese system for being “too rigid” and typical of the “mid-19th century,” calling for an end to ideological impasses between parties, unions, and employers to move forward with structural reforms.

Regarding Social Security, he described as “ridiculous” and “total ignorance” the idea that there is an intention to privatise the public pension system.

When questioned about public finances and the potential return to deficits due to the support given to families and businesses during the energy crisis, the Governor remained calm, praising the balance between support and budgetary rigor.

“The economy remains resilient, I see household income growing, I see companies reducing debt, I see the financial sector with considerable margin and liquidity, and public debt decreasing,” he summarised.

Allocation Credit Curb and New Rules for Banks

One of the most immediate areas of action for the Bank of Portugal will be the real estate market.

Álvaro Santos Pereira wants to curb the growth rate of mortgages, which is currently increasing by 10% per year. To this end, the regulator will publish new recommendations on maturities and debt-to-income ratios in the coming weeks, which will become binding, under penalty of banks being penalised if they do not comply.

The Governor warned of a “temptation to be too lenient” and the relaxation of rules by some financial institutions regarding maturities and Loan-to-Value (LTV). “We cannot repeat the mistakes of the past,” he warned.

Also in the banking sector, two new developments were announced for next year. First, the Bank of Portugal will make bank fee comparison tools available on its website for the entire population.

Then, it will move forward with the introduction of new rules to promote and facilitate the mobility of accounts between banks.

On the other hand, and looking at the sector’s past, the Governor classified the Banco Espírito Santo (BES) case as “the biggest financial fraud the country has ever experienced,” taking the opportunity to praise the work of the regulator’s technicians and his predecessor, Carlos Costa.

Clarification on the controversy surrounding the shares

When asked to comment on the controversy related to the purchase of shares in non-financial sector companies after taking office—which prompted political parties to approve his hearing in Parliament—Álvaro Santos Pereira explained that it was a “misunderstanding” on his part and regretted what happened.

The Governor revealed that he proactively contacted the ECB’s ethics committee to determine if the situation constituted a serious offense and to find out how to proceed.

The central bank official guaranteed that he acted with complete transparency and assured that, because he took the initiative to clarify the error, his resignation was never on the cards.

Source: Negócios/Antena 1; Credits: RODRIGO ANTUNES/LUSA
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