mario centeno : policy mix of the future - the role of monetary, fiscal and macroprudential policies keynote intervention by mr mario centeno, governor of the banco de portugal, at the international conference " future of central banking " organised by the bank of lithuania and the bank for international settlements on the occasion of the centenary of the bank of lithuania, vilnius, 29 september 2022. * * * good morning. let me start by explaining why i consider that the coordination between monetary and fiscal policy is fundamental for the european union to overtake the challenges of the current uncertain economic context. afterwards, i will also address the role of macroprudencial policy. monetary policy gathered credibility over the past 40 years centred on the independence of central banks and on a strong commitment to price stability. the monetary dominance paradigm is a cornerstone of the institutional framework that supports this credibility. and it plays an important role in the current high inflation setting. monetary policy must act to ensure that inflation expectations remain anchored, whereas fiscal policy must be bound to public debt sustainability. however, as claimed by central bankers over the last decades, the recent pandemic experience has shown how monetary and fiscal policies can coordinate in many circumstances, and mutually reinforce each other. notice that the low inflation, low interest rate environment that prevailed for over a decade, favoured strategic complementarities between monetary and fiscal policy towards macroeconomic stabilisation. in that environment, fiscal policy faced a less steep trade - off between public debt sustainability and stimulating demand. however, the pandemic legacy adds importance to debt sustainability. at the end of 2021, the euro area debt ratio was still 12 pp above the 2019 level. currently, as we move away from the zero - interest rate environment, rising debt servicing costs are becoming again a concern, in particular for high - debt countries. in the high inflation scenario, the trade - off between debt sustainability and macroeconomic stabilisation is stronger, especially as inflation outcomes are mainly driven by supply factors. monetary policy is more effective when inflation is demand driven ; fiscal policy has the tools to address specific supply shocks as we face today. monetary policy also faces a challenging choice between a more gradual increase of the policy rate, which takes into account the high uncertainty and its effects on the real economy, and a stronger response that tames the risks of inflation remaining noticeably above the objective for a protracted period. 1 / 4 bis - central bankers'speeches a faster than warranted increase in policy rates may

the belgian authorities, too, decided to introduce this “ twin peaks model ” here as quickly and smoothly as possible. needless to say, i am well aware that the macrodimension does not stop at our country ’ s frontiers, while the micro - supervision of cross - border groups also requires close multinational coordination. so, i strongly support the recent proposal to set up, at eu level, a european systemic risk board ( esrb ) and european system of financial supervisors ( esfs ), which are called on to cooperate closely in order to bring more comprehensiveness and consistency to national and international supervision. macro - prudential analysis must rely on rapid, direct and comprehensive access to data on individual developments liable to affect global financial stability while, in turn, this analysis must feed the micro - prudential control. it would be a pity if our efforts to improve this flow of information in our respective countries were to be impeded by hurdles at the international level. ladies and gentlemen, crisis management has been effective : many banks have been rescued, the abrupt rise in risk aversion has been countered and it seems that financial markets are returning to normal and that the fall in trade and output has come to an end. for the emergency measures not to nurture renewed financial excesses, they have to be withdrawn in a timely and gradual way and, above all, backed up by structural reforms. better regulation and supervision are needed. great haste in regulating complex matters would probably not be wise, but the political resolve for reforms should not lose momentum. thank you for your attention.