The European Central Bank (ECB) raised the benchmark interest rate for the eurozone, to which Portugal belongs, to 0.5%, a value double what was expected. It’s the first price increase in 11 years. What are the implications for the pockets of the Portuguese?
If the financial education of the Portuguese population is fairly good, this first statement will be enough for consumers to realize that it is very likely that they will have to tighten their financial constraints. But most people will hear this news with some indifference, not knowing how much this measure will affect them. In order to reverse this situation, the Portuguese Banking Association (APB), in its mission to increase the financial knowledge of the Portuguese, explains the effects of this and other issue on Site Maher saberdecontas.pt.
“It is important for Portuguese people to understand how interest rates affect their money, whether they have a home loan or a deposit made to a financial institution,” the APB says in a statement. instructionswhich then invites you to refer to the most useful contents of Site. Now, the ECB interest rate is called a “reference” because it is the rate at which the national banks govern themselves for granting loans, i.e. mortgage loans, which almost all of us own.
For households, this news should always signal the need to sit down at the table and recalculate to see what to cut back on spending.
This is because, as the APB explains, “The European Central Bank is the central bank of the 19 countries in the European Union that use the euro as their currency, thus making up the eurozone. Therefore, it is the European Central Bank that sets the official interest rates for the euro system, i.e. interest rates at which the European Central Bank and National Central Banks provide liquidity to the Eurozone.It is these that will decide the interbank rates, i.e. those that the banks exercise among themselves, and one of the most famous interbank rates is Euribor, which is applied to mortgage loans.
Thus, if the ECB interest rates rise, the mortgage rises as well, leaving less money for families at the end of the month.
On the other hand, if we have savings accounts or term deposits, when interest rates go up, the money will probably start making more.
In short, “By raising the key rate, the central bank makes money more expensive, and thus the purchasing power of individuals decreases, consumption decisions are delayed, recourse to credit is discouraged and savings will cause interest rates to rise. In the opposite scenario, when there is a decrease in The prime interest rate, money becomes cheaper, and therefore the cost of borrowing also decreases, stimulating household spending, business investment and economic expansion.”
Back to normal life
Regardless of the effort this increase represents for families, the APB chief argues that the rate hike is a return to normal. In a recent interview with DN/TSF, Vitor Pinto, who worked in the management of several national banks and belonged to the Department of Economic Studies at the Bank of Portugal, said, “What is abnormal is that there are negative interest rates,” recalling that after the creation of the euro, The six-month Euribor average was 3.6%, a value we are now very far from.
The APB chief also said families are expected to absorb the climb on the horizon, and there may be cases of greater difficulty or need that the state must support.
What is the European Central Bank?
In addition to being the central bank of the eurozone countries, the mission of the European Central Bank is to maintain price stability. Because? Because its continuous rise and fall causes instability and mistrust in economic factors and affects the economy.
How does the European Central Bank maintain price stability? As the APB explains, “ensure that inflation remains low, stable and predictable, preferably at 2% over the medium term.” Something in the current global context – two years after the pandemic and Russia’s war in Ukraine – has proven impossible, with eurozone inflation reaching 8.6% in June, the highest since 1993.
The goal will be for inflation in the medium term to return to 2%, which is why, says the APB, the ECB has several tools at its disposal: interest rates (those that Christine Lagarde, president of the European Central Bank, has already raised to 0.5%), and minimum central bank reserves (which can increase or decrease, injecting more money into the market), asset acquisitions (quantitative easingBuying bonds again increases the amount of currency in circulation and encourages borrowing and investment.
Finally, the ECB is also responsible for “supervising eurozone banks, together with the respective national central banks,” ensuring the safety of deposits and depositors and the safety of banks. It is also responsible for the issuance of banknotes and the proper operation of payment systems – debit, credit cards, transfers, etc. The stability and resilience of the financial system to withstand shocks.
Again the interest rate
With regard to Euribor, the interest rate has already been mentioned, which, in the case of the eurozone, is determined by the reference rate of the European Central Bank. What is not said, as the APB explains, is how precisely this rate is determined.
“Every six weeks, the European Central Bank (ECB) Governing Council sets the official interest rates for the euro system,” those referred to above that are used to pump or suck money out of the banking system.
When the ECB interest rate goes up, the house becomes more expensive, so does the money, and therefore the products manufactured and sold by businesses as well, so the cost of living in general increases. For households, this news should always signal the need to sit down at the table and recalculate to see what to cut back on spending.
And what about investments? “It is expected that there will be a decline in the stock market, because families and companies will fall back on their consumption (…). Stocks become less attractive, because the expected return may not compensate for the risk.”
These topics are further developed in articles “How do interest rates affect our money?” And the “What is the European Central Bank for?” Available at Site www.saberdecontas.pt, promoted by the APB. In the department “attributed to him” From Site You can find more information about interest rates.
Andrea Hargraves is a contributor to Brytfmonline.com, covering a broad range of topics including news, politics, business, technology, sports, entertainment, and lifestyle. She is committed to delivering clear, accurate, and reader-focused reporting that helps audiences stay informed about current events and emerging developments. Andrea’s work emphasizes useful information, balanced coverage, and stories that matter to everyday readers, making complex topics accessible and relevant to a wide audience.