Interest rates continue to rise in 2023. How far?

The sharp rise in interest rates in 2022, together with the general rise in prices, imposed an increased burden on most Portuguese families. prospects are of some relief in 2023, after peaking above 10% in October last year. And what about interest? Although there is no consensus on the level they could reach this year, there is a virtually unanimous perspective that will continue to rise through at least the first quarter of 2023.Especially for families with mortgage loans, the news is not encouraging, as the increase in installments to the bank will continue this year. And those who are thinking of asking for funding can prepare themselves for possible increased difficulties, insofar as the criterion assignment criteria will tend to be tighter.In this article, we show you the prospects for the evolution of interest rates in the near future, so that you can prepare yourself and your budget for the new year.

How long – and to what extent – ​​will interest rates rise this year?

At the last monetary policy meeting, on December 15, the European Central Bank (ECB) raised interest rates for the fourth consecutive time and signaled new increases in the near futureas inflation is still well above the target – below, but close to 2% – and is expected to remain so at least until 2025.“The Governing Council considers that interest rates still have to increase significantly at constant pace, in the sense of reaching levels that are sufficiently restrictive to ensure a timely return of inflation to the objective of 2% in the medium term”, informed, last month, the monetary authority. estimates of an inflation rate of 6.3% this year, 3.4% in 2024 and 2.3% in 2025.After the December decision, Klaas Knot, a member of the ECB Council, reiterated the message assuring that the central bank is only starting “the second half” of the interest rate hike cycle. . Interest far from peak

Analysts anticipate increases only in the first half

Despite the ECB’s assurance that interest rates should rise “significantly at a steady pace” in the near future, most analysts believe that increases will stop in the first half of this year. This is because the central bank is overestimating the risks of inflation and underestimating the prospects for a recession in the single currency region. On this topic, the director general of the International Monetary Fund (IMF), Kristalina Georgieva, recently warned that half of the European Union will be hit by recession this year.In this scenario, 80% of a group of 37 economists consulted by the Financial Times believes that the ECB will stop raising interest rates in the first six months of 2023while two-thirds predict that the monetary authority will indeed start lowering interest rates next yearin response to weak economic growth. On average, specialists anticipate that the deposit rate – which rose, in December, from 1.5% to 2% – will be raised to a maximum level close to 3%below the level that is being pointed out by investors, as indicated by the price of interest rate swaps. Considering that the three ECB rates are usually changed in the same proportion, the perspectives are that the interest rate applicable to the main operations refinancing rate – which increased, in December, from 2% to 2.5% – reaches a level close to 3.5% in the first half of this year.This value is in line with the estimates of the largest bank in the world, JPMorgan, which recently updated its projections, now pointing to a terminal fee of 3.25%.Also read: Euribor variation simulator for home loans

Interest rate hike hits families and companies in the first half of the year

With interest rates predictably peaking in the first half of this year, the impact on households and businesses should materialize in this periodnot only through the increase in financing costs but also through more restrictive conditions for accessing credit.“The interest rate shock is approaching, probably materializing in 2023, since, on average, the rise of reference interest rates for bank rates varies between four months in Italy and Spain and up to six months in Germany and France, and we expect a peak in the main interest rates in the first quarter of 2023”, say the specialists of Allianz Trade, in a note of analysis. Continued increases since the summer of last year are already prompting banks to tighten the criteria for granting credit to households and companies, a reality that should become more acute in the coming months. According to the latest Bank Lending Survey, by the ECB, there was already a considerable tightening in the third quarter of last year, and it can be expected even more restrictions this year.The report states that the dimension of this “tightening” is similar to that registered during the initial stages of the Covid-19 crisis in 2020, but that, even so, compared to the consequences of the global financial crisis, we are not facing a crisis of credit.Read also: New support for home loans: What are they and what do I need to do?

Interest on deposits also rises. But little

For families and companies, the most visible aspect of the rise in interest rates has been the increase in installments paid to the bank for loans taken out, with special emphasis on home loans. This is because the banks have reflected very little this rise in the interest they pay to depositors for their savings. Otherwise, let’s see: in November, when the deposit rate was at 1.5% – meaning that commercial banks received 1.5% for money deposited at the ECB – the interest paid on new time deposits by individuals was, on average, 0.35% (even so, a maximum of December 2016), according to Banco de Portugal data. the expected increase in interest should not, for the time being, have a major impact on the remuneration of savings Read more: Banks receive more interest on credit but pay less for deposits