Why savers can hope for interest rates to rise further


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Status: 04.05.2023 06:17

Call money savers could get even more interest on their money in the future. Because today’s interest rate hike by the ECB under the aegis of Christine Lagarde will probably not be the last.

By Angela Göpfert, ARD finance department

Since July, the European Central Bank has been trying to regain control of inflation in the euro zone. Since July, it has raised its key interest rate six times in a row – most recently by 0.5 percentage points in mid-March. Rate step number seven could be added today. But how far will the monetary authorities around ECB boss Christine Lagarde go this time?

Small rate hike expected

Even if some members of the ECB Council have recently tried again and again to keep another large interest rate hike of 0.5 percentage points in play: the majority of experts only expect a small interest rate hike of 0.25 percentage points for today’s interest rate decision by the central bank. The main refinancing rate should then rise to 3.75 percent. This base rate determines the interest rate at which banks can borrow money from the central bank over a longer period of time – at least one week.

While the media is focused on the main refinancing rate, savers are particularly interested in the deposit rate, which has been at 3.0 percent since March and is likely to climb to 3.25 percent this afternoon. This is the rate at which banks can “park” excess liquidity with the ECB until the next business day. In a way, it is the “benchmark” for call money rates.

Overnight money: ING no longer offers the highest interest rates

A few weeks ago, ING pushed ahead with its offer of 3.0 percent interest for six months on call money and put the competition under a lot of pressure. In the meantime, many call money providers have followed suit. According to the daily money calculator of the Frankfurt financial consultancy FMH, ING only ranks third among the banks with extended German deposit insurance.

And even this place has to be shared with two rivals, since the French Consorsbank and the Spanish Santander are now also offering their new customers 3.0 percent interest for six months. At the Volkswagen Bank, there is a little more interest on call money at 3.1 percent; The ranking list is led by the British Barclays with 3.11 percent.

Of the three key interest rates of the ECB, savers should keep an eye on the deposit rate in particular.

Interest rates are likely to rise further

However, this should not be the end of the road. Experts such as Max Herbst from FMH expect overnight interest rates to continue to rise – because the ECB is also likely to continue to tighten interest rates in the future. “Market participants see the ECB deposit rate peaking at 3.8 percent in the summer,” emphasize Commerzbank economists Marco Wagner and Bernd Weidenfeld. After today’s interest rate hike, that would amount to two further rate hikes of 25 basis points each.

However, for savers who invest their capital not only in call money but also in shares, such a persistently restrictive course by the ECB would not necessarily be viewed positively. If the monetary authorities around ECB boss Lagarde speak out more strongly in favor of further interest rate hikes than previously expected, this would “put further pressure on equities and other risky assets and open the door for a deeper correction in the markets,” emphasizes Pierre Veyret, analyst at Brokerage house ActivTrades.

After falling slightly last month, inflation picked up again in April.

Persistently high core inflation in the eurozone

The background to the ECB’s possibly longer restrictive course is the high level of inflation in the euro zone. In Europe, “no one can seriously claim that the fight against inflation has already been won here,” explains Commerzbank foreign exchange expert Ulrich Leuchtmann. “Not with the inflation numbers.” In fact, according to initial estimates by the European statistical office, consumer prices in the euro zone rose by 7.0 percent in April compared to the same month last year.

Core inflation, i.e. the rate of inflation excluding the volatile prices for energy and food, fell by 0.1 percentage points for the first time since July last year, but is still very high at 5.6 percent. This has the alarm bells ringing for many currency watchdogs: “Core inflation is quite stable and persistent, much more persistent than overall inflation,” said ECB Vice President Luis de Guindos a week ago at a discussion in Greece.

Are rate hikes already dampening the economy?

But the big question remains: how strong are the ECB’s interest rate hikes so far? And how big is the need for action at the ECB? A look at the ECB’s most recent survey of financial institutions in the euro area is illuminating in this context. According to this, in the first three months of the year, the institutes significantly tightened their standards for granting corporate loans.

The result: the demand for corporate loans shrank more than at any time since the global financial crisis. For the economists at the US bank Morgan Stanley, this is further evidence that the restrictive monetary policy is having an effect on the economy in the euro area: “This is monetary policy in action, plain and simple.”

But how much tighter credit conditions still need to be in the euro area for economic activity to slow and for core inflation to fall significantly is a question that even the ECB will find difficult to answer. Because both the high inflation and the speed with which the currency watchdogs have raised interest rates so far are historically unprecedented.

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