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The prices of virtually any service or goods we purchase They are increasing like they have not been for 40 years. In addition, interest rates began to rise, as both phenomena are closely related.
The various central banks of the world, which are the institutions that ensure that prices are stable in each country or currency area, use encourage or discourage interest rates Consumption.
In other words, this is a way of influencing the level of inflation Institutions such as the European Central Bank (ECB) or the Federal Reserve (Fed) raise or lower interest rates.
Too high or too low inflation can have a negative impact on economic development and lead to a recession. Therefore, central banks must strive for balance by tightening financing conditions to control inflation and in turn ensure that collateral damage to financial stability is minimal.
Reasons for these uploads
Prices have not only gone up in Spain, it is a global phenomenon. The CPI has shot up in our country, the Eurozone and the United States. The calls bottleneck in the global supply chains caused by the recovery of post-pandemic activities and the strict restrictions in China caused a supply-demand mismatch.
Shortly thereafter, they joined Fuel, electricity and food prices, which suffered from the severe effects of the Russian invasion of Ukraine. Faced with this situation, the main central banks started raising interest rates. Except in exceptional cases, such as Japan, rate hikes are generalized to cool demand.
The interest rate hikes are generalized with the aim of cooling demand and dampening price increases
In this sense, the Fed has raised interest rates by 150 basis points since March and intends to place them over 3% before the end of the year. For its part, the ECB plans to raise interest rates after 11 years without doing so.
Impact on mortgages
In view of this situation, the financial markets have tightened financing conditions. This reaction is reflected in the interbank markets and in Euriborwhich recovered within a year from -0.50% at the end of 2021 to over 1% in the second half of June.
The 12 month Euribor is widely used in Spain as a reference for the price of variable mortgages. Although the ECB does not set Euribor, their decisions have a determining influence. In a sense, 12-month Euribor can be said to reflect the average at which shorter-term interest rates are expected to be over the next 12 months, plus a premium.
The sharp shift in market expectations of how the ECB will act given eurozone inflation rates has caused this rise in Euribor. The ECB’s move towards normalizing its monetary policy will increase home mortgage expenses. With more fixed-rate mortgage lending, the rise in interest rates will only have a limited impact on recently mortgaged households.
This rise in Euribor is due to the sharp shift in market expectations of how the ECB will tackle inflation
CaixaBank Research believes that the overall inflation rate in Spain could remain high in the coming months. That’s why, we have to wait until the end of the year observed a downward trend. In addition, inflationary pressures will force the ECB to raise interest rates gradually and steadily over the coming months.
The study service itself sees positive and dynamic growth rates in the short and medium term, Growth of over 4% by 2022. For 2023, however, it has 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 launch of the NGEU program are the main reasons that the economists at CaixaBank are considering for this year’s positive forecast.