The European Central Bank (ECB) kept its benchmark rate at 4.5% this Thursday, marking the first pause since July 2022. The bank is holding fire on further policy normalization as it waits to gauge how inflation, growth, and employment develop across euro-area economies. In 2023, the ECB raised borrowing costs up to five times to curb price growth in Europe.
The ECB has paused its rate hikes while monitoring inflation, growth, and employment data in euro countries. The decision to pause comes after a period of tightening in 2023 aimed at tempering price pressures in the European economy.
Since taking office on July 21, 2022, ECB President Christine Lagarde has emphasized that monetary policy follows the evolving data of the eurozone. The available data will again help determine how long rates stay elevated and when the pause might end.
“Inflation remains stubbornly high and domestic inflationary pressures appear strong,” officials noted. Yet the pace of inflation has cooled in September due to base effects, and most key indicators continue to trend lower.
As the ECB monitors inflation and the broader economy, it seeks to balance stabilizing price growth with supporting growth. September’s CPI stood at 4.3%, and officials are watching for signs of a meaningful slowdown, especially in Germany, which faces a cautious path to energy-price normalization. Citizens are weighing whether the pause in rate increases will ease financial pressures.
Lagarde and her team are wary of stifling the European economy, particularly with ongoing geopolitical tensions. Debt service costs for member countries are rising, a factor highlighted by Olivia Feldman, co-founder of the financial comparator HelpMyCash.com. She notes that a pause at this meeting could offer the euro-area economy some relief.
Holding rates at 4.5% is not viewed as an immediate improvement for Spain’s financial situation. The basic basket remains a larger share of consumer spending, and borrowers with variable-rate mortgages could see higher payments if Euribor trends upward in the coming months, Feldman explains.
Does this help variable-rate mortgage holders?
Unless Euribor declines sharply, holders of variable-rate mortgages may continue to face higher costs. If the current pattern around 4.1% persists, wages could be pressured compared with six months or a year ago, depending on rate reviews. A typical mortgage could become roughly 250 euros costlier per month, translating to an annual increase of about 3,000 euros for some families in Spain.
Therefore, those with variable-rate mortgages may want to consider renegotiating terms, especially those with solid financial profiles. Better conditions could shield households from Euribor uncertainty, especially as year-end sales targets create room for favorable deals, Feldman notes.
What about deposit payments?
Interest rates have risen multiple times since July 2022, lifting loan costs for borrowers while boosting government-bond activity and investor confidence. In August, families held a notable share of treasury securities, with many government bonds outstanding and a growing role for households in the ownership of such assets.
Depositors are not seeing the same returns across Europe. Banks are paying modest rates on deposits, and some institutions have begun offering higher yields to attract savings. While liquidity has been trimmed to curb inflation, deposit pricing varies between banks, with smaller and digital banks often moving faster than large, traditional lenders.
Related insights
Market analysts advise taking advantage of fixed-term deposits where available. As experts note, several online banks now offer competitive annual rates and guarantees up to substantial limits. The opportunity exists to place savings in low-risk, higher-yield products, particularly as the variable and fixed income markets experience volatility and softer returns. This environment could reward prudent savers who shop around and compare offers.
Experts emphasize that this is a moment to put savings to work. With favorable terms and relatively low risk, savers may find compelling options in the current landscape as rate paths remain uncertain.