Europe’s monetary watchdogs are tightening the reins in the fight against record inflation. The key interest rate, at which commercial banks can borrow fresh money from the central bank, has risen to 2.0 percent, as the European Central Bank (ECB) announced on Thursday. The deposit rate was increased by the same amount to 1.50 percent. With its interest rate hikes, the European Central Bank wants to make loans more expensive in order to curb demand and thus counteract high inflation rates.
“Now you’re getting nervous”
In “ZiB 2” Heinrich Schaller, General Director of Raiffeisen Landesbank (RLB), spoke with moderator Armin Wolf about the effects of the latest ECB decision. In his opinion, the central bank started raising interest rates “much too late”. “Now people have become very nervous, because the level of these interest rate hikes is already very considerable. It is very likely that they will succeed in curbing inflation, but I think it will take a long time.”
The US Federal Reserve has already raised interest rates to four percent. “The ECB is always six to eight months behind,” said Schaller. “I do believe that we have to go in this direction.”
The tool of raising interest rates is intended to reduce demand on the markets: “Therefore, it can be safely assumed that economic growth will decline in the coming months, if not years. Some even fear a recession.”
The interview with Heinrich Schaller in full:
Savings rates are going up massively
The RLB director promised savers a sharp increase in interest rates on savings – currently at 0.01 percent. “The adjustments in the savings area will be made quickly. It won’t be long,” announced Schaller. “We will get there with the deposit rate, which is currently 1.5 percent.” If the ECB raises interest rates further, interest on overnight deposits would follow suit. “The longer you are willing to tie up your money, the higher the interest rates will be.”
However, the willingness to save is currently low. “Price increases take away the opportunity for people to save something. People need the money for everyday life,” said Schaller.
problem for borrowers
With its interest rate hikes, the European Central Bank wants to make loans more expensive in order to curb demand and thus counteract high inflation rates. Borrowers who have agreed variable loan rates are particularly affected – this affects around 40 percent of housing loans in Austria. “That can be a bigger problem for home builders,” fears the RLB boss. “If interest rates rise too much, you have to think with customers about how to bridge this short- or medium-term tightness.”
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