ECB interest rate hike in July ‘will have no impact on lending to Malta’

Local borrowers will not face immediate changes to their home and personal loans after the European Central Bank announced plans to raise interest rates, a senior banker has said.

However, that could change later in the year as inflation and other pressures affect banks across Europe.

The ECB has announced its intention to raise interest rates next month.

It will be the first time he has done so in more than 11 years and comes as he tries to control soaring inflation in the euro zone.

High inflation is a major challenge for all of us– Christine Lagarde, Director of the ECB

Announcing the move, the ECB said it would raise key interest rates by 0.25% in July, with further increases expected later in the year.

The move means many people across Europe can expect to face higher interest rates on their home loans and other personal loans.

In Malta, however, lenders are not planning an immediate hike in repayment rates for local customers.

According to industry insiders, this is because Maltese banks have very little exposure to ECB loans and are, instead, almost entirely funded by customer deposits.

No changes expected to interest rates at this time

Marvin Farrugia, head of asset-liability management at APS Bank, said local borrowers should not be alarmed by the ECB’s announcement, saying they will not be affected.

This stance was echoed by a senior source at another of the island’s biggest banks, who said no changes were expected immediately or in the foreseeable future to the interest rates charged to customers. .

That said, the future could bring new developments with further hikes expected at the ECB as early as September.

The only customers likely to be affected immediately are large local companies that have taken out loans so large that they are pegged to a range of international interest rates.

These loans are known as Euribor, short for Euro Interbank Offered Rate, and generally refer to the price at which European banks lend money to each other.

Some of the largest loans taken out by corporate clients in Malta rely on this system.

The latest estimate for Eurozone inflation stands at 8.1%, which is well above the ECB’s threshold.

“Not a stage but a journey”

“High inflation is a major challenge for all of us. The [ECB] the Governing Council will ensure that inflation returns to its medium-term target of 2%,” the ECB said in a statement.

“It’s not just a stopover, it’s a journey,” ECB President Christine Lagarde said of the decision.

The ECB’s decision comes at a delicate time for the economy.

The war in Ukraine has both pushed up prices and added to supply chain disruptions, further straining households and businesses.

The Russian invasion comes as economies hoped to begin a post-pandemic recovery.

In response to the invasion, the European Union has sought to reduce its dependence on Russian energy imports and is considering an embargo on Russian oil that would add to economic stress.

Thus, as with the state of the economy, the future of the banking sector remains uncertain.

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