The end of credit facilities: Central banks intervene in accelerating interest rates

The era of easy money is already history. Monetary policy tightening is speeding up the takeoff and central bankers are putting their feet on the interest rate accelerator. In the past seven days, three financial institutions have adopted significant rate increases. The European Central Bank opened fire, rising 0.75 basis points to put the euro’s reference rate at 2%, after hitting the highest rate in the institution’s 24-year history. For its part, the Federal Reserve announced on Wednesday its sixth rate hike in just six months, also by 0.75 basis points, which raises the benchmark rate in the United States to a range of 3.75% to 4%, something that we have not seen for 15 years. years, in the early stages of the financial crisis. On Thursday, the Bank of England completed the picture by making its largest rate hike since 1989, raising it to 3%. This is the highest level since 2008. All of the above reflects a fact: financing terms (loans, mortgages …) will be tightened for families and businesses in the major economic regions of the planet. It also asserts that central bankers have inflation in their sights and will fight it at any cost, even if it means sinking growth and even entering a temporary recession. European Central Bank President Christine Lagarde warned Thursday that “our forecasts consider the possibility of a mild recession in the eurozone, but we do not believe that this recession will be enough to tame inflation.” His US counterpart wasn’t swinging this Wednesday either: “We believe prices will maintain an uptrend. But as the Fed approaches its ultimate interest rate target, it should be more sensitive to macro data on the scale of the hikes.” Bundesbank President Joachim Nagel was spending less time this Thursday in Madrid, stressing that Germany’s view was that a hike Interest rates should continue as long as the current gap between interest rates (2%) and average inflation in the euro area (10.7%): “There is a lot to be done and we will see a new increase in interest rates because the inflation problem is really serious.” Joaquín Robles, an analyst at XTB, all of the above shows that “all major economies are obsessed with ending inflation, but it is costing them much more than expected.” In his view, particularly in the UK and US, dynamic labor markets allow for an increase in prices followed by an increase “These rapid rises in interest rates will have an effect that markets have not yet ruled out,” this expert warned, stressing that European, British and US central banks have set the goal of taming inflation above all else. Robles: “They prefer the brakes too much.” In any case, this expert noted that central banks at this point “have a duty to raise interest rates”. In short, it is an explanation of how prices can stabilize without the economy collapsing. He summed up: “Raise whatever the economy can afford.” Financing the purchase of a home or a car is more expensive as central bankers sharpen their tools to fight inflation that is just beginning, according to the Bundesbank chief, and the Fed chief already knows he will. They generate “pain”, economic actors are beginning to realize what awaits them. In the US, the average mortgage rate has risen to 7%, the interest rate on loans to buy a car is at its highest level in a decade, the cost of educational loans has nearly doubled and the annual interest on a credit card has been at 19%. More information Bundesbank chief faces criticism for rate hike: ‘Monetary policy is not made for a specific country’ The Federal Reserve has agreed to raise interest rates for the sixth time in six months and is pushing the European Central Bank to continue making financing more expensive in Europe In the eurozone the situation is becoming more difficulty. The statistics on interest rates applied by financial entities in the eurozone, released on Thursday by the European Central Bank, require an increase of 55 basis points to 2.41% of the average required interest rate in loans and credits to companies; and an 18 basis point increase to 2.44% in home purchase loans.

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