The European Central Bank (ECB) decided to lower its interest rates this Thursday. A decision which will have a direct impact on the cost of future borrowing throughout the euro zone. Explanations.
To do this, it uses interest rate leverage. It increases the latter to avoid overheating when there is inflation. And it lowers them when inflation slows, so that the economy does not seize up. After exceeding 10% in October 2022, inflation within the EU then gradually slowed down, reaching 2.6% over one year today. The ECB, which has increased its rates ten times, therefore believes that it is now time to lower them.
Why is the ECB rate cut good news for borrowers?
With this drop in rates, obtaining money will cost less for the banks, which all obtain their supplies from the ECB. They will then pass this reduction on to their customers, the borrowers, whose interest rates for a new consumer loan or a new real estate loan will be lower. Theoretically, there should be more loans granted, therefore more consumption, investments or sales of real estate. The time between the change in the ECB rate and its concrete effect on the economy is estimated at one year.
How far will the decline go?
Some economists believe that the European Central Bank could lower its rates again within three months. Other observers believe she will do so three times by the end of the year. In any case, rates will also continue to fall in French banks. While they are currently close to 4% for a 25-year mortgage loan, it could be reduced to 3.3% in 2025.