In an interview with Le Monde, the president of the Bundesbank, Joachim Nagel, underlined how "the markets are pricing in a 95% probability of a rate increase and I would say they have a good understanding of how we are likely to respond" to this situation. For Nagel, after September "there is great uncertainty". Even Olli Rehn, governor of the Finnish central bank and member of the Governing Council of the ECB, in an interview with the Financial Times, said that market expectations for a further increase in the cost of money by the ECB are "understandable".
The European Central Bank will meet on 10 September, the date on which an adjustment to the cost of money is now taken for granted by the markets. The ECB's main objective is to maintain price stability, i.e. contained and predictable inflation. For Rehn, the ECB must prepare for a scenario of prolonged tensions on the geopolitical chessboard with the continuation of the war in the Middle East and the almost total closure of the Strait of Hormuz. Prolonged conflict in the area of the world where oil and gas production and transit is concentrated would have direct consequences on energy prices. For eurozone monetary policy, it is crucial to understand the impact that high energy prices have on inflation.
Interest rates represent the cost of money for banks, businesses and families and are the main tool with which the ECB tries to cool the economy and bring inflation back towards the target of a 2% increase. The international scenario, with the prospect of rising inflation, is leading the markets to believe that a new restrictive intervention at the meeting on 10 September is increasingly likely.
In June, the Governing Council of the European Central Bank committed to defining monetary policy to ensure that inflation stabilizes at the 2% target in the medium term. In line with this commitment, it had already decided three months ago to raise the ECB's three reference interest rates by 25 basis points. In the basic scenario of the new projections of the Eurosystem experts, overall inflation would average 3.0% in 2026, 2.3% in 2027 and 2.0% in 2028. Inflation net of the energy and food component would average 2.5% in 2026 and 2027 and 2.2% in 2028.
Meanwhile, Istat has announced that the inflation rate recorded in August (3.3%) is the highest figure for almost three years. According to Federconsumatori, the increase "is affected by international tensions on the prices of energy goods, both unregulated (the rate of which goes from +11.4% to +16.9%) and regulated (from +14.8% to +18.8%), costs which will have a particularly heavy impact as the autumn season approaches". With inflation at these levels, according to estimates by the national Federconsumatori Observatory, "the consequences for each family will amount to +1,089 euros per year".
According to ECB statistics, the cost of new bank financing in the euro area remained essentially unchanged in July. The composite rate applied to new loans to businesses stood at 3.80%, while that on new mortgages for the purchase of homes remained at 3.54%. On the other hand, the yields on new fixed maturity deposits increased by 5 basis points. For businesses the rate rose to 2.26%, while for families it reached 2.14%. The yield on companies' sight deposits is essentially stable at 0.60%. The amount recognized on household accounts remained unchanged at 0.28%.
ECB rates directly influence the installments of variable rate mortgages when the rate is contractually expressly linked to the percentages of the European Central Bank. If ECB rates increase, the cost of the variable rate mortgage in turn increases and therefore the amount of the installment increases, both for existing mortgages and for those to be taken out. For those who already have a fixed rate mortgage, nothing changes, while for those who have to take out a new fixed rate mortgage, the percentage will probably be higher.
