Banking expert: Interest rates will remain high

When the European Central Bank (ECB) decides again on Thursday what to do with interest rates in the Eurozone, many economists’ eyes will return to Frankfurt (Germany). Background: Interest rates have evolved to an unprecedented extent in recent months.

The key interest rate has been subject to significant fluctuations in the past – depending on how the economy develops. The interest rate was last at just over four percent in 2008. But in the years since, interest rates have gradually fallen – partly due to the financial and banking crisis. From 2014 onwards, the key interest rate has been just above zero percent, and from 2016 onwards, it has been just zero percent for several years. But as of July 2022, interest rates were quickly raised to 4.5%.

“I did not expect such a rapid increase.”

Even the banks did not expect such a rapid increase, Reinhard Karl, head of the banking department at the Lower Austrian Chamber of Commerce and deputy general manager at Raiffeisenlandesbank Niederösterreich-Wien (RLB NÖ-Wien), said in an interview with NÖ-. Heot on Wednesday Claudia Schubert. The ECB should have started raising interest rates earlier in order to combat rising inflation earlier. Karl stressed that interest rates probably would not have risen this much at all.

Almost every second loan in Austria has a variable interest rate. For these households, monthly loan payments rose sharply due to rapid increases in interest rates. Karl explained that those people who took out a variable loan around 2015 would have benefited from zero interest rates for years. Those borrowers who chose to take out a fixed-rate loan had to accept higher costs in return.

This makes it even more important to clarify and discuss the issue of your personal life situation when concluding the loan agreement, explained Deputy General Manager of RLB NÖ-Wien. According to Karl, anyone who chooses to take out a loan with a variable interest rate should take into account the risks of rising interest rates in their budget calculations.

Interest rates are likely to remain high for a long time

Karl does not expect another interest rate increase – the ECB has already increased its key interest rate nine times since mid-2022 – at the ECB’s interest rate meeting on Thursday. All analysts’ ratings will produce the same picture.

“We will see that interest rates will remain the same over the next few weeks. The expectation for the next meeting in December is also that there will not be any further rise in interest rates. But there will not be a cut in interest rates any time soon,” Karl explained. High interest is here to stay for a longer period of time.