In consequence, to meet their remaining liquidity needs, firms sought new funding. The result has been an increase in the demand for credit, in a setting in which lenders’ risk perception has increased. According to the results of microsimulations made by the Banco de España, 68% of Spanish firms will record liquidity shortfalls3 in 2020, almost 10 pp more than under a counterfactual non-pandemic scenario.4  3  The definition used here considers that a firm has a liquidity shortfall when its cash inflows, deriving essentially from sales of products or services, are lower than the payments relating to its activity (supplies, rentals, financial expenses and personnel costs) and those resulting from its investment in fixed assets and its debt repayments. 4 See R. Blanco, S. Mayordomo, A. Menéndez and M. Mulino (2020), Spanish non-financial corporations’ liquidity needs and solvency after the COVID-19 shock; Occasional Paper No 2020, Banco de España. 2  It is estimated that between 2020 Q2 and Q4, the total liquidity shortfall of the business sector will amount to some € billion, € billion more than under the counterfactual nonpandemic scenario if no account is taken of the liquidity needs associated with investment in fixed assets. Firms’ liquid assets and undrawn credit lines would be insufficient to cover more than half these liquidity needs. These simulations also show that a large part of firms’ total liquidity needs would arise at low-credit-quality firms.
This is a reason why the central bank should act with foresight and be alert to the development of inflation expectations. BIS Review 8/1997  -2-  The potential for influencing fluctuations in activity around the trend is dependent on people’s appraisal of the central bank’s determination and ability to maintain price stability. Central bankers talk of the importance of credibility, by which is meant the extent to which people expect inflation to be in line with its targeted rate. The degree of credibility is conditioned by, for example, the historical record of inflation and the existence of government financial deficits. Weak credibility calls for caution in monetary policy, just as higher credibility confers more room in which to manoeuvre. Experience has shown, moreover, that even in the shorter run, the possibility of influencing employment and unemployment via monetary policy is very limited. Limited fluctuations around the growth trend are by no means sufficient condition for a smooth development of employment and low unemployment. Comparisons between countries and regions reveal that a similar growth pattern, even over a considerable period, can involve markedly divergent effects on employment and unemployment. This highlights the function of the labour market. It is there that measures must be taken in order to tackle problems with employment and unemployment. I want to underscore some conclusions from this discussion. Monetary policy cannot have growth as the primary objective because it is not capable of influencing growth in the longer run.