By Sergio Goncalves

LISBON (Reuters – Many central banks are attempting to downplay the temporary effect of rapid inflation by claiming that it is a temporary phenomena. This could lead to a deeper monetary adjustment in the future. Credit Suisse (SIX:) Chairman Antonio Horta-Osorio said.

Markets have been lending a lot of money to central bank… But the recent indicators show that the temporary may be less temporary,” he said at a Lisbon banking conference, calling central banks’ speech “somewhat brave”.

“If the inflation does not prove to be temporary, then it could trigger a greater monetary adjustment that would otherwise be needed,” said the chief executive at former Lloyds (LON) Bank in Portugal.

Market inflation expectations are being driven by disruptions in supply chains and an abrupt increase in energy prices. Horta Osorio stated that this would have significant implications for determining what will happen to long-term interest rate and yield curve.

Interest rates rising before the economies are able to lower their indebtedness will be “the biggest threat” for countries such as Portugal. Portugal has the third largest public debt of any country in Europe, at 135% GDP, in 2020.

Mario Centeno, a member of the European Central Bank Governing Council and Bank of Portugal Governor, stated that inflation is still a temporary phenomenon due to the rapid recovery and bottlenecks in supply chains. There are no secondary effects on European prices from the labor market.

The ability of monetary policy to resolve supply shocks is important, however it must remain aware of its limitations. It is important to be patient in this time,” he stated, recommending “a monetary and fiscal policy that remain accommodative during this recovery phase” along with a support for more vulnerable sector.