The ECB raises interest rates again by a quarter of a point, up to 4 percent

He European Central Bank (ECB) decided to take the eighth consecutive increase this Thursday Interest rates, by raising the reference rate from 3.75 to 4%. A level never seen since the adoption of the single currency.

The decision comes only a day after Federal Reserve decided to hit the brakes after ten jumps that set exchange rates between 5 and 5.25%. A set that on both sides of the Atlantic aims to tame inflation.

in euro zone, prices gave a truce in the month of May, falling by nine tenths, to 6.1% on an annual basis. Of course, at this time in 2022, they were already on a rampage. In Spain, inflation reached 3.2% last month, which is already close to the 2% target set by the ECB.

Although there is still a lot of room for price stabilization, the truth is that economies are starting to emit the first alarm signals and this is pushing the organization that it commands christine lagarde moderate monetary policy. Germany, for example, entered a technical recession after chaining two quarters of the fall of the gross domestic product (GDP). And an increase in the price of money can make the situation worse. Therefore, in the following months, no sharp rises are expected, but rather a stabilization period of six months.

We raised interest rates by 0.25 percentage points.

See our latest monetary policy decisions https://t.co/JW3z8IFf5C pic.twitter.com/q8xYoge8ec

—European Central Bank (@ecb) June 15, 2023

Also, euro it strengthened again with a revaluation of 3.68% last year, managing to maintain parity with the dollar. This is a relevant fact since this strength has prevented the cost of importing products such as energy, which are sold with US currency and on which the EU is heavily dependent, from skyrocketing even further.

Euribor is already close to 4%, which puts mortgage lenders in trouble

The mortgages and loans to consumers and businesses will continue to be a bit more expensive, yes. The market has already taken the ECB’s move for granted, which is why Euribor climbed to the daily threshold of 3.944% and 3.916% per month.

For those who registered an average mortgage of 180,000 euros for 25 years on their house, this escalation will already mean they pay almost 290 euros more per month when it’s their turn to do the annual inspection at the bank.

The question that citizens ask themselves after almost a year of tightening monetary policy is when will the ECB stop raising interest rates. Given that inflation is still triple the 2% target, many analysts believe it still is there could be a new rise before you press the brake. Everything will depend on how the activity in the major euro powers will develop.

The latest available data points to contractions industrial activity both in Spain and Italy. In Germany, it remained unchanged and 4.5% below its performance before the pandemic, and only the French managed to improve.

“The positive start to 2023, thanks to a winter with relatively low energy prices, is over,” say Oxford Economics analysts. New orders fell again, helping to reduce inflation, but businesses still face high costs. “We believe that the Eurozone industry will shrink again in the second quarter,” they point out. The contraction of domestic demand, due to rising credit prices, will affect activity in 2023.