ECB, interest rate hike: this is what the consequences will be in the coming months for the financial and banking market but also for families who intend to invest and buy a house, for example.

ECB, rate hike 2022: what does it mean, when and what are the consequences

ECB, rate hike: what does it mean

The ECB (European Central Bank) announced that there will be a rate hike in the coming months. At the same time, the ECB has also decided to stop the PEPP (Pandemic emergency purchase program), i.e. the financial program (funds for people and businesses) launched in March 2020 to counter the impact of pandemic oneconomy of the euro area. Raising interest rates means that when central banks lend money to other banks, the cost of money increases and as a result people will be less likely to invest.

The choice of the ECB should serve to curb the rise in prices and preserve the purchasing power of consumers. “The new projections – explained the president of the European Central Bank, Christine Lagarde- they predict annual inflation of 6.8% in 2022, before it drops to 3.5% in 2023 and 2.1% in 2024 ″.

Since when and what are the consequences

July 2022 will mark the first increase on the cost of money in the euro area for 11 years now. «We plan to raise the key ECB interest rates again in September. The calibration of this rate hike will depend on the updated medium-term inflation outlook. Beyond September, based on our current assessment, we expect a gradual but sustained path of further interest rate hikes to be appropriate “Legarde explained at a press conference in Amsterdam.

Then, there will be in September, a second step of rate hikes. «If medium-term inflation prospects persist or worsen – reads the Frankfurt board statement – a greater increase would be appropriate at the September meeting. Beyond September, based on its current assessment, the Governing Council expects a gradual but sustained path of further interest rate hikes to be appropriate. In line with the Governing Council’s commitment to reaching the 2% medium-term target, the pace at which the Governing Council adjusts its monetary policy will depend on incoming data and how it assesses inflation developments over the medium term. term”.

The first consequences were reported by the European stock exchanges with the spread which, after the announcement, reached 214 basis points. Milan loses 1.5%, with Frankfurt, Amsterdam and Paris fluctuating on a drop of one percentage point. The Madrid Stock Exchange is down 0.8%, with London down 0.7%. The euro remains fairly stable above 1.07 against the dollar, while the tension on government bonds remains strong, with the 10-year BTP reaching a yield of 3.55% and the spread against the German Bund at 210.

Other consequences will affect families who will decide to invest and buy a house with very high variable interest rates. As a result, the mutes will be very expensive in the coming months.

Read also: The ECB has decided to stop buying the bonds from July 1st

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