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Interview on Reuters with Governor of Banco de Portugal, Mário Centeno, published on 15 March 2021

  • ECB expects data to vindicate 1.85 trillion euro purchasing scheme: policymaker
  • Bank of Portugal governor expects banking M&A as natural step


The European Central Bank is hopeful brighter data in coming quarters will confirm that the amount of its 1.85 trillion euro ($2.21 trillion) Pandemic Emergency Purchase Programme set in December was appropriate, ECB policymaker Mário Centeno said.

Centeno told Reuters on Monday the ECB would adjust the money-printing scheme, which has so far been "quite successful", on a monthly basis to respond to challenges after new lockdowns in the first quarter dampened recovery in Europe. 

"So the decision is going to be taken on a monthly basis, because we can adapt the baseline amount up or down depending on market conditions," the Bank of Portugal governor said during the interview - his first after the ECB's meeting on Thursday - at the Money Museum adjacent to the central bank.

However, as countries revised growth for the last three months of 2020 upwards, the carry-over effect may offset part of the negative economic impact early in 2021, Centeno said.

"We now continue to be hopeful that the second and third quarters will prove that the trajectory was right, and if that happens, then the decision that we took in December about the (PEPP) amount is appropriate," he said.

"No one challenged that in our debates" during Thursday's ECB Governing Council, he added, explaining that the ECB remained flexible about whether to use up the whole amount.



But he warned that policymakers needed to be "humble" in their assessments and much still depended on new variants of the virus and vaccinations, making immediate forecasts riskier than projections for the second half of the year.

"Hopefully we can all look at the numbers and say 'hey, the summer was OK, the services sector across Europe has been able to guarantee cash flows to get into the future in a much stronger position' - this is not the case yet."

"We are quite happy with the impact of PEPP (but)... the second and third waves of the pandemic show us we are still under emergency procedures, not yet out of the woods, we are very far from that yet and we must keep all our policies actively in place."



He also called for a swift approval of the European Union's 750 billion euro Next Generation EU spending package, which is taking "longer than we'd like", but acknowledged that the EU process needed to run its course for maximum beneficial effect.

Centeno said the monetary policy's potential in dealing with the crisis, which he argues is temporary and not structural, has not been exhausted yet, and works even better when complemented with EU fiscal measures.

Despite a recent surge in euro zone bond yields, Centeno said adopting yield curve control was unlikely to be needed and in any case he "would not support its strong implementation".

"Again we are quite happy with the way our policies are responding to the crisis and I don't see a reason for us to change that. If time comes (to seriously consider curve control)...we will get to that point, but honestly I don't see that happening." 

Mergers and acquisitions are a "natural" next step for Portuguese banks pressured by record low interest rates, Bank of Portugal Governor Mario Centeno said on Monday.

Portugal had arrived late to the process of banking sector restructuring that other European countries experienced while Portuguese banks were still desperately trying to cut bad loans and strengthen capital ratios, Centeno told Reuters.

Non-performing loans held by Portuguese banks have since fallen to 5% of all banking credit from a peak of 17% in 2016, accompanied by similar-sized cuts to branches and staff.

"Due to the need to do all these transformations, the issue of mergers was not a priority," Centeno, who is also a European Central Bank Governing Council member, said in an interview.

"Now low interest rates are putting enormous pressure on banks' profitability ... I'm confident banks will perceive this challenge and will be ready to respond. So, I would expect mergers to come up as a natural market development," he added.

Centeno said some banks or stakes were for sale, while others had converging strategies, which could drive deals.

Spanish lender Abanca gave up on buying a controlling stake in EuroBic, in which Angolan billionaire Isabel dos Santos has been trying to sell her 42.5% stake, in July but said it was still interested in Portugal. 

Centeno said an end to a freeze on loan repayments, introduced last year to help the economy through the pandemic, should not cause a dramatic jump in bad loans.

"We don't see any signs of this happening ... I don't see any reason for this to be more serious in Portugal than in other countries," he said, adding that non-performing loans fell last year during the pandemic crisis.

Centeno said the central bank is closely monitoring all data on a weekly basis and it is too early to say if it will revise its 3.9% growth prediction, despite a first quarter affected by a new lockdown.