Consumers, finance experts, companies, and banks have begun to wonder when the expansionary monetary policy of the European Central Bank (ECB) will end. The forecast of interest rates in the next year points to a rise that would end the measures to increase the currency in the eurozone.
The Governing Council of the ECB, the body that defines European monetary policies, announced after its June 2018 meeting that interest rates or money prices would remain at their current levels until at least the summer of 2019.
The interest rate with which the ECB lends money to banks is 0% since March 2016, the record low to date. This measure was promoted after the economic crisis to promote the eurozone’s growth and increase the money in circulation.
Long haul loan costs allude to extended estimations of government bonds developing in ten years. It is estimated as a rate. Estimate information is determined by making a general evaluation of the monetary atmosphere in only nations and the world economy, all in all, utilizing a mix of model-based investigations and measurable pointer models.
In a quickly developing economy, salaries go up rapidly, and an ever-increasing number of individuals have the cash to purchase the current pack of products. As increasingly more cash pursues the current arrangement of merchandise, the costs of such products rise.
Growth spikes. To contain growth, a nation’s national bank regularly pokes up the financing costs in the economy. Like this, it boosts individuals to spend less and spare more since sparing turns out to be more gainful as loan fees go up. As an ever-increasing number of individuals decide to spare, cash is drained out of the market, and the expansion rate moderates.
The ECB president has left the door open to a possible extension of cheap money to ensure its main objective: maintaining price stability in the eurozone with inflation below 2% in the medium term. However, his term ended in October 2019, and the decision will remain in the new president’s hands.
On the other hand, the ECB has repeatedly assured that the rates would remain stable until the end of the billionaire asset purchase program that started in March 2015. This extraordinary measure of money injection into banks, which will reach 2 55 billion euros, ends at the end of 2018.
After these not too factual statements, the different theories that set a possible date for the expected rise in rates begin. For example, it could occur at the end of 2019, in the hands of Draghi’s successor, according to a recent Bloomberg survey of 45 economists.
The credit rating agency Fitch also thinks about it and estimates that the ECB will undertake its first-rate hikes in 2019, up to 0.5%, due to the good progress of the European economy.
Apart from the different forecasts that do not clear up the unknown interest rate rise in the next year, the ECB keeps forecasts of GDP growth and inflation for the next two years in the eurozone. In 2019, it estimated a GDP increase of 1.9% and inflation of 1.7%. The next year, it calculates an economic growth of 1.7% and inflation of 1.7%.
How does the next year’s interest rate forecast affect me?
An interest rate forecast in the next year that points to a rise will immediately affect banking products. For example, the interest they pay for paid deposits and payroll accounts or the cost of variable-rate mortgages is what most worries the consumer.
The cost of variable-rate mortgages, the most widespread in Spain, depends on the 12-month Euribor price. The Euribor is the interest rate applied to transactions between European banks: what one bank pays to another in exchange for a loan. As soon as the ECB raises rates, the Euribor will also rise, making mortgages more expensive.
An interest rate forecast in the next year that implies a rise will also increase the credit to families. With zero rates, banks can ask the ECB for money without taking risks. When this situation changes, the cost of private credit will increase so that banks can maintain the profitability of their operations.
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