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The prices of virtually any service or good that we acquire they’re rising like they haven’t in 40 years. Moreover, interest rates have started to rise because the two phenomena are closely linked.
The various central banks of the world, which are the institutions that ensure price stability in each country or monetary zone, use interest rate to encourage or discourage the consumption.
In other words, it helps to influence inflation levels institutions such as the European Central Bank (ECB) or the Federal Reserve (Fed) increase or decrease in rates.
Inflation too high or too low can have a negative impact on economic development and lead to a recession. Therefore, central banks must strike a balance by tightening financial conditions to control inflation and, therefore, ensuring that collateral damage to financial stability is minimal.
Reasons for these downloads
Prices have not only increased in Spain, but it is a global phenomenon. The CPI has skyrocketed in our country, in the euro zone and in the United States. The calls neck in global supply chains, caused by the resumption of activity after the pandemic and the severe confinements in China, have caused a mismatch between supply and demand.
Shortly after, they join fuel, electricity and food prices, which suffered the strong impact of Russia’s invasion of Ukraine. Faced with this situation, the response of the main central banks was to start raising official rates. Except in exceptional cases, such as in Japan, interest rate hikes are becoming widespread with the aim of cooling demand.
Interest rate hikes are spreading in a bid to cool demand and curb rising prices
In this sense, the Fed has raised its official rates by 150 basis points since March, and intends to place them above 3% before the end of the year. For its part, the ECB plans to raise its rates after 11 years without doing so.
Influence on mortgages
Given this situation, financial markets have tightened financial conditions. This reaction is reflected in the interbank markets and the Euriborwhich, in one year, rebounded from –0.50% at the end of 2021 to more than 1% in the second half of June.
The 12-month Euribor is commonly used as a benchmark for the price of variable mortgages in Spain. Although the ECB does not fix the Euribor, their decisions have a decisive influence. In a way, the 12-month Euribor can be said to reflect the average at which shorter-term rates are expected over the next 12 months, plus a premium.
The significant change in market expectations as to how the ECB will act in the face of inflation rates in the euro zone is behind this rise in the Euribor. The ECB’s turn towards a normalization of its monetary policy will increase mortgage effort in homes. Although given the larger contraction in fixed rate mortgages, rising rates will have a limited impact on recently mortgaged households.
This rise in Euribor is due to the radical change in market expectations on how the ECB will act against inflation
Search CaixaBank estimates that the general inflation rate in Spain could remain high in the coming months. For this reason, we will have to wait until the end of the year observe a downward trend. Moreover, inflationary pressures will force the ECB to gradually and steadily raise interest rates in the coming months.
The research service itself envisages positive and dynamic growth rates in the short and medium term, place growth by 2022 above 4%. However, for 2023, it lowered the forecast growth from 3.8% to 2.4%.
The resilience of the labor market, the savings accumulated during the pandemic, the consolidation of the expansion of the tourism sector and the deployment of the NGEU program are the main reasons why economists CaixaBank for this year’s positive outlook.