There is a year left to see the interest rates that start to fall in the eurozone. This is what the governor of Banco de España, Pablo Hernández de Cos, assured this afternoon in an intervention at the La Caixa Foundation.

These projections, which are managed by the European Central Bank (ECB), are subject to high uncertainty. But they have two significant props. One, that the price of money is still destined to rise to 3.75% (currently the deposit facility rate is at 3.25%). Two, that this level must be maintained for the following quarters before falling, so that this downward movement would only occur in the second quarter of 2024.

“We still have a long way to go. Interest rates will have to remain in restrictive territory for a long time to achieve our objective in a sustained manner over time,” Hernández de Cos explained in his speech.

So the central banks’ tightening is bound to continue (and even increase) for a while. Bad news for who will have to renegotiate their mortgage.

However, the Governor has introduced some noteworthy nuances. “We have left behind the peak of the inflationary episode”, he stressed, a maximum that the eurozone reached in November 2022. Forecasts even suggest that in the second part of 2025 the long-awaited target of 2% will be reached.

This downward trend is justified, in his opinion, by the fall in energy prices, the improvement in supply chains and the moderation of demand, as a consequence of the tightening of financial conditions.

Indeed, oil is below what it was trading before the Ukraine war, freight prices have returned to pre-pandemic levels and even the FAO Food Price Index has entered a downward phase to return to 2021. And yet, underlying inflation “continues to register high pressures”, the Governor has acknowledged.

Pablo Hernández de Cos has not offered explanations on this point, but has noted that wage pressures have continued to intensify, which may be one of the reasons, along with robust business margins, why inflation is having such a hard time coming down. For example, compensation per employee and per hour in the fourth quarter of 2022 in the euro area stood at 5% and 4.3%, respectively.

“Regarding margins, according to the data from the National Accounts for the first quarter, companies would have continued to increase in some sectors,” he indicated.

Hernández de Cos has taken advantage of the occasion to also give a wake-up call to the different governments, many of them these days engaged in generous electoral campaign promises, so that they contribute effectively to fight against the runaway growth of prices.

“In the current environment of high inflation, it is necessary that the tone of fiscal policy is not incompatible with the tightening of our monetary policy. This means that public support measures should be temporary and be focused on the most vulnerable agents and adapted to the maintenance of incentives to consume less energy. Otherwise we run the risk of inflationary pensions increasing in the medium term”. He has not made allusions to announcements or specific measures announced these days.