In the face of accelerating inflation, the ax fell. This Thursday, the European Central Bank (ECB), through its President Christine Lagarde, announced an increase in interest rates (also called key rates). The first in ten years, which says a lot about the social and economic crisis that the European Union is going through.
Information can creep into the news as it appears to be aimed at an informed audience. However, it will affect a large part of the French. In fact, such a symbolic increase (from 0 to 0.50% of the prime rate) will significantly increase bank interest rates and reduce the number of applicants for a mortgage. Mile BernierA spokesperson for online broker Meilleurtaux.com explains why.
European Central Bank raises key interest rates for the first time since 2011, what does that mean?
Before proceeding to explain the increase in key interest rates, let us already understand the role of the European Central Bank per se. “The European Central Bank was established in 1998, and it aims to fight inflation,” explains Mile Bernier. “Since 2016, its rate has reached 0%, because inflation in France, as elsewhere in the eurozone, has been almost zero,” she adds. For just two years, France, Europe and even the world, if we think big, are going through an unprecedented social and economic crisis. Indeed, COVID-19 + war in Ukraine = inflation. “Faced with this period of record inflation, the European Central Bank, through the voice of Christine Lagarde, announced an increase in key interest rates on Thursday,” our specialist explains. In other words, to cool inflation, the ECB slows consumption by making money more expensive.
What does this increase mean for individuals?
Whoever said higher key interest rates say higher bank borrowing rates. Yes, because can you imagine that banks finance themselves in the markets, but also and above all from the European Central Bank? If you borrow at a higher rate, then the banks logically lend at a higher rate in turn. The Meilleurtaux.com spokesperson continues: “Bank interest rates have gone up significantly in recent months, and people who borrowed at 1% a year ago are out of luck.” “Today, rates are around 2.5%, and we might get to 3% soon.”
Are the French at risk of rejecting more loans in the coming months?
In addition to high rates, Maël Bernier tells us that over the past few months, one in two funding files have been rejected by banks. But not everything is the fault of the European Central Bank, according to the expert. “If the borrowing rate is at 2.5% and inflation is at 5%, that remains more attractive than the borrowing rate at 1% with inflation at 1.5%.” It is clear that everything is proportional to inflation.
“The other scourge of getting borrowed is the rate of erosion.” wear rate? “It is the limit set by the Bank of France which aims to protect the borrower from excessively high bank rates,” the broker explains. Except today, this rate does not change as quickly as the ECB or inflation itself. “Thus the individuals who are fully deserving of the loan, i.e., who do not exceed the famous stubbornness rate of 35%, have their bank loans rejected which exceeded the wear and tear rate.” In short, a snake bites the rate.