The failures of Silicon Valley Bank and Credit Suisse shook the global financial system. Central banks assure that there is no risk of infection. The European Central Bank insisted that the accounts of financial institutions be reliable and have good liquidity. In fact, both the ECB and the US Federal Reserve continued to raise interest rates, thus ignoring the banking crises. But these falls will have an impact on the economy. The Bank of Spain indicates that these crises will dampen inflation.

The latest inflation data available in Spain is for February. The CPI is up 6% this month and core inflation is up 7.6%. As for the Eurozone, inflation was 8.5%.

However, in the Spanish Quarterly Economic Report, the watchdog clarifies that the unleashing of this episode “severe financial stress” on a global scale, “this caused a new unfavorable outrage”. In addition, it ensures that the extent and persistence of these bankruptcies is “highly uncertain” for the time being. For all these reasons, the Banco de España assures that it is not currently possible to indicate whether “these financial tensions will continue or, on the contrary, they will gradually decrease” in the near future. In any case, they note that it is likely that the resulting uncertainty has “some negative impact on the development of economic activity in the coming quarters and also contribute to the weakening of inflationary dynamics”.

As a result of the recent correction in financial markets, yields Long-term sovereign debt with higher credit quality was below the level observed at the end of last year.. Meanwhile, since the end of December, the long-term yield spread of European sovereign debt relative to the German benchmark has remained almost unchanged in Greece and Spain, while in Italy and Portugal it has fallen by 22 basis points and 9 basis points, respectively.

The Bank of Spain puts the banking situation in context, explaining that the situation began with the financial deterioration of a specific bank in the US (Bank of Silicon Valley), “with a very specific balance sheet structure that made it especially vulnerable to higher interest rates.”

The fragility of this structure has raised doubts in international capital markets about the reliability of other financial structures. To this situation we must add, as they emphasize, that “Interest rates have risen very sharply and rapidly in recent quarters”. All this means that the vast majority of global banking institutions have recently experienced a significant deterioration in their share prices, and some of them, including Silicon Valley Bank, Signature Bank, First Republic Bank and Credit Suisse, needed support measures from the authorities. .

In response to these financial crises, the Bank of Spain notes that the prospects for further tightening of monetary policy have changed due to increased risk aversion and volatility caused by recent financial tensions in the international banking sector. Earlier, at the beginning of March, Central banks were expected to continue to tighten monetary policy. as a result of a less intense slowdown in activity than expected and more persistent underlying inflationary pressures.

In fact, the US Federal Reserve, which on Wednesday raised rates by 25 basis points to a range of 4.75-5%, softened its speech. So far, the US central bank has indicated a “permanent rise” to reach the restrictive level needed to contain inflation. However, in a recent speech, Fed Chairman Jerome Powell pointed out that the top is near and that there may be only one or two more bounces before the end of the cycle.

For its part, the ECB, which at its last meeting raised interest rates by 50 basis points to continue on its target of restoring inflation to 2%, stressed that the high level of uncertainty fueled by financial tensions reinforces “the importance that their future monetary policy decisions depend on new information flows”

The ECB Governing Council stressed that the eurozone banking sector is highly resilient and has strong capital and liquidity positions. For this reason, the agency continues to focus on inflation. However, the agency is not going to sit idly by on the banks, as it said that keep a close eye on financial market tensions and that it is ready to respond as needed to maintain price stability and financial stability in the euro area.