2023-07-28 10:59:00
The European Central Bank (ECB) has complied with the script provided by analysts and announced by the institution itself in recent weeks by raising interest rates in the euro zone from 4% to 4.25%. The increase, of a quarter of a percentage point, places the official price of money at its highest level in the last 15 years. All economic agents took this decision for granted since the last meeting of the institution’s governing council. In fact, the stock markets have maintained the rate of rise after hearing that opinion at noon.
However, its president, Christine Lagarde, this time did not want to be trapped by her statements by leaving a new rise in the air in September. “It will depend on the inflation data and economic developments,” she has indicated. “We deliberately point out that it will depend on the data, which can vary from month to month, we can upload or maintain.” For many ECB meetings, it is the first time that Lagarde does not fully anticipate what path she will take with short-term interest rates. There is no guide on this decision, although she has not ruled out that the unstoppable rate of increases has peaked either.
The justification continues to be an inflation that the ECB does not end up giving controlled. And as long as prices remain strong, rates rise. “Inflation continues to fall, but it is still expected to remain too high for too long,” the ECB advanced in its official statement after the meeting of the governing council. The text adds: “Our decisions in this regard will continue to be based on their assessment of the inflation outlook in light of incoming economic and financial data, core inflation dynamics, and the strength of monetary policy transmission.”
The opinion that the ECB has taken this Thursday practically coincides with the calendar that the bank also adopted in July 2008. At that time, it was commanded by the Frenchman Jean Claude Trichet, who advocated raising rates to contain the bubble economy in which Europe lived, despite the voices that urged it to anticipate a crisis. A few weeks later, in September of that year, the American bank Lehman Brothers failed and the great recession began.
This time, the ECB is acting more cautiously, valuing both its goal of reducing the inflation rate to 2%, which is the key objective of its mandate. And for now prices are rising in the euro zone at a rate of 5.5%. It rose again in June, against estimations of moderation. And it is seen as the real danger for the European economy, a continuous rise in costs that is more persistent than expected.
Lagarde has linked part of this inflationary process to the rise in labor costs. In other words, to the increase in wages, one of the reasons that, in his opinion, would explain why the price rate does not moderate at a faster pace, as expected, to put an end to rate rises. “Wage pressures are becoming an increasingly important source of inflation,” Christine Lagarde pointed out as early as June. She has now insisted on that hypothesis, although adding “enterprise margins”, that is, the profits that companies are generating.
Although the central bank is still pending the evolution of the economies, for now it is not the priority issue for Frankfurt. European GDP continues to grow although some countries are beginning to show signs of exhaustion, especially due to the drop in demand for credit and the paralysis of business investment. Especially in Germany, the engine of the euro zone. But for the ECB, for now, inflation weighs more than the evolution of activity, although some territories are close to technical recession.
Sky-high mortgages
The rise in rates will once again increase the mortgages of Spaniards as well as the cost of financing the products they contract. In the first case, the Euribor is at 4.15% in July. Although he has halted his promotions, a year ago he was close to 1%. The increase in the installments of those who have to review their mortgage will no longer be as exponential as the one they have been dragging the last year. But it will continue to be more money that they must allocate to their credits.
For example, for a mortgage of 150,000 at 25 years with a differential of one percentage point over the Euribor, the increase in installments suffered in the last year will have made him pay about 340 euros more, on average, after the decisions of the ECB. Specifically, before Frankfurt began escalating rates a year ago, that loan had a fee of 535 euros, which went to 635 euros when the rates last year; and now it will be above 870 euros per month.
Despite these increases in monthly payments, Spanish banks still do not see danger on the horizon given the possibility of a rebound in defaults. Most of the entities that are presenting their results these days indicate that those with mortgages are facing these mortgage increases with their savings and due to the good evolution of employment, without the need to resort to the mortgage code agreed between the financial sector and the Government.
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