On 8 September, the European Central Bank (ECB) raised interest rates to 1.25% for the second consecutive time in two months. Today, President Christine Lagarde announced new increases to address runaway inflation.
“In the medium term we have to push inflation back to 2% and we will do what we have to do. That is to say keep raising the interest in the next meetings”, she explained.
Lagarde has also confirmed that due to the economic shock of the Russian invasion in Ukraine and the ensuing price crisis, the outlook for the eurozone economy is for activity to slow “substantially” in the coming quarters. “Our goal is not to reduce growth, our essential goal is to ensure price stability. That is something the ECB has to achieve,” he added.
When interest rates rise, the price of loans also increases. Therefore, those who have contracted a variable rate mortgage will be the main ones affected, however consumers who have their savings in the bank will benefit from interest rate hikes.
As explained by the Consumers and Users Organization (OCU) “if you have saved funds that you do not need immediately, but which you do not want to risk, a good deposit can be a solution”.
The organization warns: “However, the profitability of these investments is limited, so deposits are really a good option to invest at a short-term horizon without taking any risks. However, if you have money that you will not need in the next 5 or 10 years, you can get more out of it and get higher returns by following an investment strategy appropriate to your expectations.”