10.04.2023  Latest monetary policy developments in the euro area The Brookings Institution The Hutchins Center on Fiscal and Monetary Policy Washington, DC. Pablo Hernández de Cos Governor  Good morning, it is a pleasure to visit the Hutchins Center on Fiscal and Monetary Policy and share with you my reflections on euro area monetary policy at a still very challenging time for central banks globally. I will start by briefly describing the decisions that we adopted at our European Central Bank (ECB) Governing Council meeting in March. Then, I will lay out a number of factors that will determine our future decisions and will require close monitoring going forward. Our March meeting took place in the context of the financial tensions related to the banking sector in the US and in Switzerland. These tensions increased investor risk aversion and financial market volatility and led to a global drop in bank share prices. While the European banking sector is resilient, with strong capital and liquidity positions, the main message from our meeting was that we are closely monitoring these financial tensions and we stand ready to respond as and when necessary to maintain price and financial stability in the euro area.
Between 2012 and 2022, the share of households’ bank debt with an interest rate fixation period of up to one year fell from 35% to 25%, while for non-financial firms the proportion of bank debt either maturing within a while a year or with an interest rate fixation period of up to one year declined from 70% to 59%.18 A second factor could be related to a slower pass-through of market rates to retail deposit rates than in previous episodes, which could weaken the standard intertemporal channel through which rising interest rates discourage savers from spending.19 This slower pass-through could come from the fact that, during the period with negative rates, the 18  These results, however, mask a significant degree of heterogeneity across countries: the share of household debt with interest rates that reset within a year stands at 63% in Spain and 59% in Italy, but just 6% in France and Germany. In the case of firms, the share of bank debt either maturing or with interest rates that reset within a year stands at 93% in Italy, 70% in Spain, 48% in France and 41% in Germany. 19  It should be noted, however, that a slower pass-through to deposit rates may also have dampening effects on household spending, by slowing down the increase in savers’ financial income. 7  remuneration of retail deposits was above market interest rates, as banks were unwilling to reduce it below zero.