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What happens if the European Central Bank raises interest rates?

What happens if the European Central Bank raises interest rates?

there European Central Bank Falls in the crosshairs of speculation and expectations on the hot topic of interest rates: Will there be a hawkish turn as inflation intensifies? The answer is more awaited than ever in Italy, given that the potentially high cost of debt will be an obstacle to growth. Although Lagarde, president of the European Central Bank, talked about scaling and the need for a careful assessment of the data in March so she can make any decision – noting the disagreement with the US, where the Fed is ready to taper – the debate about higher rates has finally opened.

Money.it Remember that an increase in the interest rate – applied exclusively by the reference central bank, as well as a reduction – means an increase in the cost of borrowing money – and therefore credit, mortgages and financing are directly involved. For Italy, a strong move in this direction will increase the cost of borrowed capital; Mortgages are more expensive and therefore less convenient; prices government bonds Low and high yields, or the high cost of government debt; high financing costs and the consequent decrease in business investments; More savings and less spending with borrowed money or less consumption.

All of these consequences will undermine expectations of Italy’s relaunch, given the increase in expenditures needed to pay interest on debt. Finally, it must be remembered that between 2022 and 2023, the extraordinary purchase of government bonds launched by the PEPP – implemented by the European Central Bank during the pandemic emergency – will fade, albeit gradually. Italy has been among the main beneficiaries of this measure, as a relatively large central bank has absorbed debt demand that is set to disappear. Thus, without the extraordinary contribution of Frankfurt and at higher rates, Italy would have to rely almost exclusively on financial reforms, stability and political credibility.

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