Owners of a call money account should hardly be able to wait for this day, but those who are planning a construction financing soon or have to make a new interest rate commitment will be less enthusiastic: there are increasing signs of an imminent turnaround in capital market interest rates. An increase in interest rates seems increasingly likely in the near future. For home buyers, home builders or many prospective borrowers, this means new construction loans or fixed-rate installment loans will be more expensive!
Sign 1: the economy is picking up speed across europe
The european central bank, or ECB for short, is responsible for the ongoing low-interest phase. Your president mario draghi and his euro bankers ushered them in with various capital market instruments to boost the crippled european economy. Low interest rates mean cheap loans, was the credo here. In turn, these cheap loans should revive consumption, investment and thus the overall economy. Whether this is working is revealed, among other things, by the inflation rate – as a yardstick, one defined a rate of just under two percent. If this parameter approaches the ECB's targets, there will no longer be any reason for the bank to keep interest rates low. And this is exactly what it currently looks like.
In spring 2017, banks extended around 2.5 percent more loans to households or businesses than in the previous year. So there is actual consumption and investment. Alongside this, the inflation rate in the euro area was already very close to the ECB's ideal at 1.9 percent in april 2017. And the other economic data from the member countries also fit the picture. The economy is getting off the ground on a broad european basis. These are all indicators that the ECB will soon loosen its screws on interest rates.
Sign 2: more and more resistance
The ECB's policy has never been uncontroversial. But now it is being increasingly openly criticized by many politicians and bankers in the eurozone. They ask more and more directly: isn't it long past time to roll back the flooding of markets with cheap money? Bank chief draghi is still resisting the move, seeing the rise in inflation primarily as a result of rising energy and food prices rather than as a signal of a general economic recovery. But how long can the italian still maintain his opinion?? When will the pressure on it become too great? Because it has long been clear that the vast sums of cheap money in recent years have fueled one thing in particular: the stock markets. Fears of this bubble bursting are high, as a stock market crash could easily trigger the next global financial crisis.
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Sign 3: no more opportunities to react
These are precisely the kind of crisis scenarios that are making some financial experts' hair stand on end right now. If it comes to that – or if the economic recovery runs out of steam very quickly again – the european central bank is relatively helpless and largely condemned to stand by and watch. After buying a staggering two trillion euros worth of government bonds, the ECB no longer has an effective arrow in its quiver, and with key interest rates at 0.0 percent, further rate cuts – i.E., the decision to go negative – would be impossible if it didn't want to add fuel to the fire of a possible crisis scenario.
Sign 4: the big european election year
France has already done it, electing emmanuel macron as its new president. In germany, the next important election of a leading european nation will follow shortly. And for years now, the ECB has regularly been suspected of repeatedly linking its decisions to political calculations. The neo-liberal macron relieves the financial circles of a whole bundle of worries about the political stability in the eurozone at once. Low interest rates or even negative interest rates are a no-go for him. Shortly after macron's election, the ECB also changed its choice of words. Were negative interest rates so far always a consciously communicated possible further option, mario draghi limited himself in his statements now 1already exclusively to a stay of the interest rates at their current level for a "longer time".
In the french election, the ECB held back with its nuanced hints until the result of the second ballot was known, so as not to exert any influence. But before the upcoming federal election in germany, there is another interest rate decision by central bankers in early september. It is quite possible that the ECB is waiting for this date to announce the first – albeit only marginally – positive key interest rate since spring 2016, in order to provide some reassurance to german voters who fear for their savings. It would be a signal that both parties in the current german government could well use, as it would defuse the election campaign by an important issue: the preservation of the value of private assets combined with the question of adequate retirement provision.
Sign 5: first changes in america
The U.S. Fed has already taken the next step. It already raised the key interest rate again for the first time at the end of 2015, and had further increases in 2016 or 2017. The U.S. Key interest rate level has thus long since cracked the 1 percent mark again. This also increases the interest rate on U.S. Government bonds. The weaker interest-bearing papers of european nations are in danger of becoming more and more of a storekeeper. So pressure is also coming from this direction on the central bank to slowly raise interest rates again.