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Monday 23.07.2018 | Name days: Magda, Magone, Mērija
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Expert: interest rates to keep growing

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Baltic news, News from Latvia, BNN-NEWS.COM, BNN-NEWS.RU

Dainis Gaspuitis

The European Central Bank (ECB) has raised its key interest rate, thus confirming the market expectations. Consequently, the lat interest rates will soon follow the euro rate, rising above in the longer term. SEB bank’s macroeconomic expert Dainis Gašpuitis (Gaspuitis) warns all new loan takers that the rates will continue to rise, predicting a repeated rate increase in the second half of the year.

The ECB’s decision has already increased Euribor rates. The euro rate climb will primarily affect those who have chosen a floating rate. On the one hand, the ECB’s move was aimed at curbing the rising inflation, restricting expectations and preventing its increase rates to go out of control. However, not everyone is happy about such decision, because the cost increase will suppress the positive processes, as it may further undermine the banks’ already rather unstable condition.

The expenses will rise for consumers, which may painfully reflect in economies with still weak growth or recession and vulnerable financial sector. The Spanish and Irish banks are very sensitive to rate increases; therefore, the expected rate hikes may sharpen the stability issues. As regards Latvia, it will affect the purchasing power; consequently, the rising costs can reflect in the consumption growth rates. Overall, the rates and rising inflation are the factors that may affect the growth. However, the interest rate and inflation rise will not stop the current trends in the Latvian economy.

Any new loan taker, who chooses floating rates, should take into account that rates will continue to grow and accordingly assess the ability to meet these obligations. The loan currency should be considered individually. Borrowers should not rely on low lat rates, as they will soon follow the euro rate, rising above the euro rate in the longer time. The repeated increase in rates is expected in the second half of 2011. However, it is possible that if the Spanish economy stumbles, the ECB may be forced to reduce rates again.

As reported by the business news portal BNN, on April 7, the ECB raised its key interest rate by 0.25 percentage points up to 1.25% for the first time in almost three years, in order to promote the fight against inflation in the eurozone’s member states, reports Reuters.


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