Who wins and who loses with ECB rates at 4.50%

With the October decision, ECB rates remain at 4.50%: who loses and who wins with a firm cost of money, but anchored at high levels? With inflation falling but at risk due mainly to possible price triggers from the war in Israel, the ECB wanted to take a break from aggressive moves on financing costs.
What are the consequences of an ECB interest rate stuck at 4.50%? Let's see who wins and who loses with the cost of money reaching this high level (and which could remain so high for a long time).
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.
With rates at 4.50%, the loan installment could rise to 759 euros.
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).