The Organization for Economic Co-operation and Development (OECD) has issued the warning that those who have bank loans to repay can expect some difficulties this year. In question, the interest rate increases operated by the European Central Bank (ECB) to fight against inflation.
At Nascer do SOL, Paulo Rosa, economist at Banco Carregosa, says that “despite the sharp deceleration of inflation in the euro zone in May, the ECB remains determined to raise interest rates, with at least two additional increases of 25 basis points in its benchmark interest rate at future meetings”. But he leaves a caveat: “Increasingly high interest rates imply an increased effort on the part of families holding mortgages when examining them,” he confides to our newspaper.
The economist also specifies that “since real estate loans are mainly indexed to the 3-, 6- and 12-month Euribor, even if the ECB begins to reverse its current restrictive monetary stance at the end of 2023 or the beginning of 2024, the revision of the implicit rates interest rates on loans will only kick in later, at three, 6 and 12 months, and only then will families feel relief”. For this reason, he adds, “until then, the life of some economic agents will not be easy, also reducing disposable income, also contributing to less consumption, less sales by companies and economic contraction. “.
Carla Maia Santos, head of sales at Forste, says the OECD alerts provide insight that the organization “does not expect the ECB to make interest rate cuts over the next year 2024, or if they exist, they will be important”. interest even displayed negative values”.
And go ahead?
Asked what the ECB should do now, Paulo Rosa argues that “given the visible trend towards a slowdown in inflation, particularly in May, the ECB should focus more and more on the economy and not concentrate solely on inflation. And the economist explains his opinion: “In truth, the trajectory of consumer prices seems increasingly under control and the number of unfavorable macroeconomic data is increasing, threatening the economy with a recession”. Thus, he adds, “faced with increasingly recessive inflation, the ECB should suspend the rise in interest rates. The likelihood that the ECB will err on the side of zealous interest rate hikes is increasing, and this aggressively restrictive stance could lead to a recession,” he warns.
Carla Maia Santos maintains that the ECB’s decisions will always depend on the rate of inflation. “If we see EU inflation slowing down continuously, we could see the ECB cut interest rates and then we’ll get a ‘breath of fresh air’ into the economy and investors.” If this does not happen, “apprehension about the growth of economies is likely to persist”.
The expert is of the opinion that this OECD alert “results in a downward revision of growth expectations, leading to more positive data on inflation and interest rates also having a more positive impact on the economic sentiment.
In turn, Vítor Madeira, analyst at XTB, says that the interest rate should continue to climb by 25 basis points in the next two central bank meetings and “thereafter the rate should stabilize at 4, 25% and only when there is a sign that inflation will return to 2% is that the ECB should start cutting rates, so do not expect the rate to fall before 2024”.