By Chrysostomos Tsoufis
The period when we had to be patient, to evaluate the developments carefully is over. Now is the time for action. That was pretty much her message Christine Lagarde from Ljubljana, Slovenia, which in essence announced interest rate hikes even in Julywhen the bond purchase program is expected to be completed.
THE war in Ukraine and its effects are the catalyst for developments. Firstly, because, according to France, ECB leaders are shaping a world where geopolitical correlations will be more important in configuration of supply chains. In essence, Lagarde is talking about less globalization as well international companies will still want to produce cheaply, but they will not be able to do it everywhere. Second, the war will accelerate the green transition and independence from “hostile” energy producers such as Russia. But until they are achieved, Fossil fuel prices will remain high as will demand for metals that are already in short supply.
In other words, a world of high energy costs is being formed and therefore inflation. And while until now the ECB has been facing for more than 10 years with crises that required the reduction of interest rates (debt crisis, pandemic), the current one demands their increase.
Rising interest rates mean less and more expensive money. It is noteworthy that since March, when the debate on the need for the ECB to press the interest rate increase button began to intensify, Yield of 10-year Greek bonds increased 29% from 2.67% to 3.45%
Of course, the borrowers will also be affected loans with floating interest ratesand linked to the euribor following the ECB interest rate.
For example for a mortgage loan of 100,000 euros for a period of 20 years with an interest rate of 3%, the monthly installment amounts to 555 euros. An increase in interest rates from Frankfurt by 0.25% to 3.25% will increase the installment to 567 euros.
The high inflation conditions that have been created will also affect growth everywhere. We are not talking about a recession, they clarify in Frankfurt, but Lagarde herself admitted that for some time inflation and growth will move in different directions. Fatal, government, institutions, Bank of Greece and houses, all revised down their growth estimates with the latest in Greece regarding the EBRD and Morgan Stanley