Who wins and who loses with the next ECB rate hike?

A citizen observes a house for sale poster. / ef

The shift in monetary policy benefits banks and savers, while the cost of financing becomes more expensive

Clara Dawn

The open bar is over. The decision of the European Central Bank (ECB) to end its debt purchases on July 1 and undertake the first interest rate hike in 11 years that same month will have its pros and cons for the different economic agents. Banks and savers will benefit from the start of the normalization of monetary policy, while debtors, including those with mortgages, and consumption, will bear the brunt.

By raising the reference interest rates, it is foreseeable that loans (new ones and those that are renewed) for families and companies will also become more expensive. Specifically, according to data from the Bank of Spain, the debt of families was around 701,500 million euros in April, assuming the majority of mortgage loans (517,224 million).

The simple expectation of a rate hike has already caused a notable rise in the Euribor, which has gone from trading negative just a few months ago to starting June above 0.45%. The effect is already noticeable in more expensive mortgages, also for those who already own. In fact, the cost of the average mortgage that was reviewed in May shot up by 600 euros a year.

This greater financial effort to meet charges such as the mortgage could, in turn, cause a negative impact on other items of consumption, one of the pillars for economic recovery. Especially in a context in which the rise in wages has been completely decoupled from runaway inflation of 8.7% at the end of May.

The State will also have to pay more to finance itself in the market. In fact, you are already doing it. In the syndicated issue held this week, 8,000 million euros were placed over 10 years, with a coupon that remained at 2.55%, the highest for the reference since 2014.

In the secondary markets, the return on the one-decade bond has also shot up to 2.6%, after rising more than 6% with the ECB's announcement. A notable gap compared to the 0.5% that investors demanded to buy Spanish debt at the beginning of the year.

It should be remembered that the transfer does not take place immediately, but rather as old debt matures and is replaced by debt issued at new rates. In other words, Spain will be able to continue to finance itself cheaply, but not as much as before.

Here's the bad part. Savers will be the great beneficiaries of the rise in interest rates, after years of crossing the desert in which products such as deposits or interest-bearing accounts have earned practically zero.

Banks also gain, by increasing their intermediation margin (difference between active and passive rates). They will earn more by making credits more expensive to compensate for the higher cost of remunerating deposits.

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