Interest rates: the next hike is coming – what does it mean for borrowers?

During its session scheduled for Thursday, February 2 The Governing Council of the European Central Bank He will open his cards regarding monetary policy.

And – barring a shock emergency – it will raise interest rates on the euro by an additional 50 basis pointsin The fifth consecutive increase from the summer of 2022when it changed course in its monetary policy.

Altogether, if these predictions come true, interest rates on the euro will rise by a total of 300 basis points, in the biggest upward salvo in recent years.

But the big bet is not Thursday’s rally, which is somewhat taken for granted, but what the ECB intends to do next. That is, if it continues in the same pattern or if it “hits the brakes”, waiting to see the trajectory of inflation and its escalation rate.

she is, however, Christine Lagarde She has hinted that she intends to stay on the “hard line” and continue to file in the spring of 2023.

“Inflation by any measure, whichever way you look at it, is very high.”

Ms. Lagarde recently confirmed, speaking to a World Economic Forum panel in Davos, that the ECB is ready to take “all the measures we need to take” to bring inflation back to the 2% target “at the appropriate time”, which is also a target for the bank.

And this despite his recent statements EurostatAnnual inflation recorded a clear slowdown in the euro area, reaching 9.2% in December 2022, compared to 10.1% in the previous month.

There are similar messages from the other side of the Atlantic, in his capacity as managing director JPMorganAnd Jimmy Damon He said – also from Davos – that interest rates on the dollar could be higher than current expectations Federal Sparewhere there is still “a significant amount of core inflation”.

“I really think interest rates will probably go above 5%…because I think there’s still high inflation, which isn’t going to go away that fast,” he said.

Additional costs for borrowers

In any case, the predicted rise in interest rates is already having an impact on millions of borrowers as the interbank market has already discounted the new levels. It shows that interbank rate Euribor 3 months stands at 2.468%After effectively deducting the first increase of the new year.

respectively, That from 6 months up to 2.922%, with a discount of another 50 basis points increase within the next six months. End, The 12-month Euribor is currently 3.352%with the expectation that at least two more increases – beyond the one in February – will follow within 2023.

In absolute terms, for borrowers, this means that the additional cost of a variable rate mortgage can be just as much. Two more doses.

For the average mortgage, the burden related to the summer of 2022, when the dominoes began to rise, is already so far From 100 to 150 euros per monthaccording to length and duration. Whereas, if the ECB finally proceeds with the new increases, the additional cost could exceed €200 per month or a total of 2400 euros on an annual basis.

Accordingly, for small and medium-sized enterprises, the total cost of borrowing now starts from 5% -5.5% and it is not excluded that it will exceed 6% during the year, which changes the facts both in terms of Loan service And also regarding sustainability of their business plans.

In fact, it was precisely this change that turned mega-corporations into grantees recovery fund which are charged at much lower interest rates.