Interest rates remain at 4.5%, at least for now. As expected, the European Central Bank (ECB) decided not to continue increasing interest rates, at least for now, at its meeting on Thursday. The decision taken by the body chaired by Christine Lagarde, Fall in Eurozone inflation It rose to 4.3% in September, recording the lowest figure in the last two years. This, together with the fact that the danger of the entire eurozone falling into recession is becoming more and more lurking, means that the ECB has no reason to continue increasing official interest rates.
The European institution started with: rate increases On July 21, 2022, inflation reached levels even above 10 percent. Since then and until last September, there have been ten interest rate increases, the first by 0.75 points, then by 0.50 points, and the last by 0.25 points. This brought official interest rates to 4.5%, the highest level since 2001, but as Lagarde noted in her speech, “we are not at maximum rates.”
The goal of the European Central Bank in its interest rate increase policy to reduce inflation Up to 2 percent in the Eurozone “In order to reduce inflation, we must first reduce consumption by both companies and families,” says Simone Colombelli, Mortgages manager and mortgage advisor at the benchmarking agency iAhorro. He adds: “Increasing prices too quickly and interest rates too high can lead to a slowdown in the economy, as in many European countries such as Germany.” “It leads.”
What will happen at the December meeting?
ECB President, Christine Lagarde has stated many times that interest rates will not fall until 2024. It is even possible that they will not do so until the middle or end of that year. So, facing its next meeting on December 14, the ECB has two options: continue holding interest rates at 4.5% or raise them again.
The option of a new increase of 0.25 percent is also on the table, although Colombelli believes he will “most likely keep them as they are now, so as not to worsen the economic situation in the eurozone.” “The ECB may change its mind and raise interest rates in December to soften consumption as much as possible ahead of Christmas and the start of the year, which is a key moment for the economy,” an iAhorro spokesman said.
Moreover, although there are countries such as Greece, Norway, Belgium, the Netherlands and Denmark that have already achieved the inflation target of 2 percent or even below, many countries such as Italy, Germany, Croatia and, above all, Hungary are also very close to this target. is far from this figure. How these progress in October and November will depend largely on whether the ECB makes an increase. The progression of the conflict between Israel and Palestine in the Middle East will also affect: This could cause fuel prices to rise rapidly in Europe, which could affect inflation.
How will the ECB’s decision affect mortgage holders?
“Banks are making small adjustments to their offers, both upward and downward, for now without strictly following the ECB interest rate line,” explains the Director of iAhorro Mortgages. Colombelli adds that this is because: “A 0.25 percentage point increase in interest rates does not necessarily have the same impact on mortgage offers; “Banks change prices by focusing on their targets rather than interest rates or Euribor levels.”
Yes definitely, this year euribor remained much more stable higher than the ECB’s interest rates. In fact, the variable mortgage benchmark index has risen just eight-tenths of a percent so far this year, from 3.337% in January to 4.175% in October; Interest rates increased by two points from 2.5% in the first month of the year to October. current 4.5%. Therefore, the difference between interest rates and Euribor is currently 0.32 percentage points, but in the event of a new rate increase this difference may increase, which could negatively affect the reference index for variable mortgages. The European Central Bank and macroeconomic policy.
“If the ECB continues its upward trend in interest rates, the Euribor will continue to rise and it does not make sense for variable mortgages managed according to this reference index to be above 4 percent and fixed or mixed mortgages to be above 4 percent,” said the Mortgages manager at iAhorro. explains: “We should keep the NIR around 3% because these will eliminate the variable product” and banks are likely to be first in line if the European body raises interest rates on December 14. Revise your offers upwards by quarter 2024 and make your mortgages slightly more expensive bring it.”