ECB rates at 4.5%, who benefits? Here's who wins and who loses

Who loses and who wins with ECB rates still stuck at 4.5% The central bank meeting in March has not yet lowered the cost of money, rather leaving it at a level considered high.
The good news on decreasing inflation was confirmed by Lagarde, who is confident in the path of decreasing prices.
However, there is still not enough certainty about the solidity of this inflation trend in the Eurozone and the fear of seeing rising wages keeps Frankfurt cautious.
Rates could still remain high at least until June and for this reason it is legitimate to ask what the consequences of a cost of money at this level are.
Who wins and who loses with ECB rates at 4.5%? Who wins with the increase in ECB rates When we talk about interest rates we essentially indicate the cost to be paid to borrow money.
This means, for example, that if a consumer or a business wishes to request a bank loan to have liquidity available through a loan, the interest rate to be paid to the lender (in this case the credit institution) rises, making less convenient to ask for money.
This is precisely the purpose of the ECB: to cool the demand for liquidity, investments and consumption in order to cool inflation.
The premise helps to understand why, in the mechanism of rate increases, winners and losers can be identified.
Who benefits from a high cost of money? Banks One of the effects of higher interest rates is that banks, by applying a higher cost of borrowed money, earn more.
In technical terms it means that their interest margin grows, benefiting the balance sheets of credit institutions.
Specifically, for banks the interest income, the interest it collects from customers and which is influenced by ECB rates, is greater than the interest expense, the interest it pays to customers.
Savers Since it is more expensive to ask for loans to spend cash, it becomes more profitable to save.
With higher interest rates, essentially, those who have money in deposit accounts can expect a greater return, since, as explained by the ECB itself: "interest is the amount that your savings yield, i.e.
the return you receive when the bank is “borrowing money” from you.” Be careful though: the increase in the deposit rate is not going hand in hand with the interest rate in bank determinations, thus eroding savings already affected by inflation.
This was recalled by Fabi, the Autonomous Federation of Italian Bankers.
Who loses with ECB rates at 4.50% With a higher cost of money, there are various sectors and financial and economic categories that face disadvantages.
Who loses when ECB interest rates rise, as is happening now? Private individuals with a mortgage The first thing that weighs on private citizens with the increase in the cost of money is the increase in the mortgage payment, especially at a variable rate.
This happens because the Euribor, from which the interest rate of a variable mortgage is calculated, is linked to the ECB monetary policy, in the sense that it increases with a rise in central bank rates.
The central bank intervenes by increasing its reference rate and this also increases the value that European banks have to pay when they borrow money from the ECB.
As a result, banks will also increase the cost for citizens and businesses applying for loans and mortgages.
Just to mention a calculation, explained in a Money.it article, the installment paid in January 2022, when the interest rate (TAN) was 0.67%, amounted to 456 euros.
After the numerous increases made by the European Central Bank to contain inflation, the interest rate on the same mortgage increased significantly, reaching 5.05% in September 2023, bringing the monthly installment to 740 euros.
However, it must now be considered that the ECB strategy has changed and rates will probably no longer rise.
Indeed, the first cuts will be made during 2024.
For this reason, something positive is moving for mortgage payments.
As explained in our dedicated article, by the end of the year banks could lower the installment of various variable rate mortgages by around 100 euros per month.
A survey carried out by Facile.it also opens up encouraging scenarios, as we explained here.
Consumer citizens Even without a mortgage, the normal consumer citizen is still negatively affected by rising rates.
This is because the cost of borrowing money from the bank is growing, at a very complicated time for family budgets affected by high inflation.
Still high prices of basic necessities erode purchasing power, while the ECB makes it more difficult to borrow the liquidity that would be necessary to meet expenses.
State The monetary policy of rising rates usually translates into an increase in bond yields, with a consequent fall in its price.
Now, the surge in BTP yields means that government debt costs more.
The Public Accounts Observatory has carried out a study in this regard: with a 1 percentage point increase in interest rates on government bonds, persistent and uniform along the maturity curve, interest expenditure can grow by 3 billion in the following 12 months (and 39.4 billion in the following 5 years).
This greater burden on state coffers adds to a not rosy period, given that public spending has been pressured by aid to help families and businesses with high bills.
Businesses For businesses, obtaining loans will be more difficult and prohibitive with ECB interest rates rising with each meeting.
Companies that wish to invest by asking for financing find themselves having to pay greater charges to the banks and are therefore often forced to slow down.
Furthermore, companies that already have debt now have to pay increased installments, with repercussions on balance sheets and risks of insolvency.
Also pay attention to the movements of the euro.
Generally, an aggressive monetary policy pushes the single currency against the dollar.
With the appreciation of the euro, exports are more advantageous, but not imports, which usually concern raw materials (which risk increasing in price even more with an unfavorable exchange rate).