Informe_Anual_Cecabank_2016_ENG

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Monetary policies
In Europe, as the chart shows, the effects of ultra-expansive monetary policy
are revealed in the interest rate curves, both in Germany and Spain, which
continue to flatten out (both short term and long term rates). There are three
potential scenarios for the future:
1. That there is an increase (not expected) in inflation, starting a phase of
abrupt monetary restriction, which would have the potential to bring in-
tense financial instability, and high and volatile interest rates.
2. That loose monetary policy continues, a scenario in which advanced
economies would follow the Japanese model and low interest rates would
remain constant.
3. That monetary normality is gradually restored, which would lead to a
slow and ordered return to normal GDP and inflation growth and the
increase in rates would be gradual and modest.
In the United States, Donald Trump’s plans have triggered inflation expecta-
tions and, by extension, interest rate increases. Investors expect the Fed to
increase interest rates three times in 2017.
Central banks’ monetary
policies have also had a
serious impact in 2016.
200
180
160
140
120
100
80
60 7,500
SPANISH RISK PREMIUM VS IBEX
Source: datosmacro
Spanish risk premium IBEX (right scale)
1
2016
2
2016
6
2016
3
2016
7
2016
10
2016
4
2016
8
2016
11
2016
5
2016
9
2016
12
2016
9,500
9,000
8,000
8,500
Cecabank 2016 Annual Report Page 57
05 OUR BUSINESS MODEL
5.1
5.2