The European Central Bank (ECB) has raised this Thursday the reference interest rate from 0% to 0.50%. The measure seeks to tackle the inflation that has plagued the pockets of the citizens of the eurozone for months. The idea is to calm demand by restricting money flows, which can translate into a slowdown in the economy.
What repercussions will raising the reference interest rate, the price paid by banks to obtain financing from the ECB, have on a day-to-day basis? The affectation may not be so much with half a point. Of course, if inflation continues and the ECB is forced to raise rates again, the impact may be much more noticeable.
living place
Mortgages will get more expensive
In the realm of housing, it will make mortgage granting more expensive and access will be tougher, since the money that entities lend will seek to go to more solvent consumers, who can pay more expensive financing.
Also those who have flexible loans in force will see the installments rise as they are referenced to the Euribor, a rate that will go up. In fact, the market -the Euribor is set by the price at which entities lend money- has already been discounting the increase in rates and has reached a maximum of a decade, at 1.164%.
Mortgage offers in a bank
“The mortgaged are going to be the main affected by the rise in interest rates, since it will cost them more money to repay their mortgages if they have a variable interest rate,” they point out from HelpMyCash.
On the other hand, if the demand for mortgages falls, the search for housing would suffer and the prices of available flats could begin to fall, as there are fewer clients willing to take on debt. “If mortgages are more expensive and more difficult to obtain, the demand for housing will decrease. And if the pace of sales falls, sellers will need more time to sell their flat and, probably, they will have to lower prices,” they continue from the financial portal.
Consumption
Loans also on the rise
Loans will also become more expensive. For banks, financing becomes more expensive from today. The 0.50% rise in the reference rate is the rate for the money that the ECB leaves to entities to lend to their clients, so they have to transfer it to the consumer so as not to lose money along the way. This would be seen in loans to both individuals and companies. As borrowing will be more expensive, the demand for financing and consumption will decrease.
In the case of companies, those that used credit to refinance debt, the practice can become impossible for them and they enter higher and higher debts.
A woman withdraws money from an ATM
Economy
Energy and the shopping basket calm down, but so does employment
The rise in interest rates may lead to a slowdown in activity. With worse financing conditions, the growth of business activity slows down and this can end up affecting its operation, affecting employment if things start to go wrong. As consumers will have more expensive financing, they will think twice before spending on credit, reducing consumption.
Thus, if demand from industry and consumers falls, the pressure on energy consumption -which is soaring today-, raw materials and materials would have to be calmed, stopping the increase in prices in the shopping basket.
The rise in prices has been noticed in the shopping cart
Saving
Improves the remuneration of deposits
One of the positive aspects of the rate hike is that customer deposits in banks would begin to be better remunerated. With an increase as low as the one that has been decided, but, it is not expected that large increases will be seen and that the remunerations of the past still do not return.
Investments
Changes in the markets
In terms of investments, rate hikes direct investment towards fixed income, debt, while variable income, the stock market, would take a back seat in the interest of investors. The logic is that the states will have to pay more to finance themselves, offering higher yields on their emissions, today at historic lows. With higher rates, they will attract more attention as a safer investment than the stock market.
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