The best thermometer to check what the evolution of interest rates will be is anticipating another rise in the official money price this Thursday, when the European Central Bank (ECB) meets to set its monetary policy. The Euribor, the index that shows this financial behavior, is above 3.8% after the first two working days of May. In other words, above the 3.75% at which it closed in April and thus with expectations of new rate hikes. This Wednesday, a day before the ECB’s Council meeting that will take place in Frankfurt (where the institution’s headquarters are located), the Euribor has indicated that Christine Lagarde, the President of the ECB, will announce a new rate hike that will lead to to the euro zone will be at least 3.75% of the current 3.5%. At its previous meeting in mid-March, the ECB already raised interest rates by half a point from 3% to 3.5%, despite the financial tension that prevailed in the banking sector at the time due to the bailouts. US banks Silicon Valley and Singature, as well as Swiss Credit Suisse, were taken over by UBS because of the deterioration the entity has been showing for months. This context caused the Euribor to fall slightly to around 3.3%, when it threatened to cross the 4% mark. Over the past two months, the mortgage indicator – traded daily with the expectations of the major European banks – has not stopped climbing towards that reference, which it may reach in the coming weeks, before the summer. The rise of the Euribor is intertwined with a new commercial policy of Spanish banks, which are becoming increasingly restrictive in providing mortgages. This is evidenced by the most recent bank lending survey conducted by the Bank of Spain, which shows that the entities have been “tighter” in the eligibility criteria and conditions that apply to the loans, while at the same time there has been a decline in credit demand. The regulator points out that in the first quarter both the lending criteria and, in particular, the general terms and conditions for new loans would have been tightened across the board for the fourth consecutive quarter. With regard to the concession criteria, the regulator indicates that the tightening of corporate financing would have been more moderate than what the entities expected three months ago, although it would have been more severe in lending to households. «The decrease in credit supply would be a response to the increase in risks perceived by financial institutions and a lower tolerance towards them, mainly related to the deterioration of the macroeconomic outlook and borrower solvency, as well as the increase of the financing costs ”, explains the supervisor through a press release. For example, the percentage of rejected applications increased in all modalities. Similarly, the tightening of lending conditions would have been very intense, especially the increase in costs, which would translate into some margin increase, both in corporate and household financing. In addition to a tightening of credit supply, the Bank of Spain also reports a decline in demand for loans, both by companies and households for consumption and other purposes and especially for home purchase. For the second quarter of 2023, financial institutions surveyed by the Bank of Spain expect another general reduction in supply, albeit more moderately than in the first quarter, and a decline in credit demand, which would also be less intense than that recorded during the first three months of the year.
Source: La Verdad
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
