The European Central Bank (ECB) will close part of its monetary policy next Thursday (21) by raising main interest rates to contain uncontrolled inflation. This increase, which is the first since 2011, will have repercussions for many economic actors.
brake for loans
Commercial banks get their liquidity from the European Central Bank. The ECB will charge more for this liquidity by increasing its refinancing rate, one of its top three rates. And due to the domino effect, banks will reflect these increases to their customers.
Buying a house will be more complicated: the increase in property prices, which has already been noticed for several months, is expected to continue.
Companies that have provided easy access to credit in recent years are also likely to be affected. For example, banks may refuse to issue loans for risky projects.
However, “home finance costs are only partially dependent on official ECB interest rates and are also determined by supply and demand or the creditworthiness of the borrower,” says Andreas Lipkow, Comdirect analyst.
Benefits for savers
In recent years banks have had to pay 0.5% when depositing money with the ECB. It was a way to encourage them to inject their liquidity into the economy.
As a result, many businesses passed this fee on to their customers in the form of a “holding commission” if their current account balances exceeded a certain amount.
Now this additional cost will disappear.
Lowering interest rates will restore banks’ margins, which should be able to offer a more attractive return on certain investments.
However, Elmar Völker, an analyst at LBBW, warns that it will take some time for significant interest on savings to be re-earned.
“Basic interest rates expected to rise” [e das taxas de poupança] “It’s not big enough to compensate for high inflation rates,” he says.
Bad news for debtor countries
Governments that finance themselves from the markets will lose, as will borrowers and corporations.
After years of zero – even negative – interest rates, the debt burden will increase, reducing governments’ budgetary room for maneuver just at a time when measures to support purchasing power are costing billions of euros.
Attention for investors
Equity markets have benefited from low interest rates and cash flow from major central banks for years.
Faced with low yields on government bonds, investors flocked to risky assets, primarily equities, and stock markets soared.
In recent weeks, world stock markets have fallen as central banks tightened their grip on inflation.
Tech stocks have been particularly hard hit: the Nasdaq index is already down 30% from its late 2021 highs. June was the worst month in bitcoin’s history, down more than 40%.
Elmar Völker notes that because the ECB “moves very slowly and foretells rate hikes, investors have long been prepared for big swings in the equity markets.”
source: Noticias
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