Friday, 4th July 2008
First interest rate rise since Malta joined the euro
The European Central Bank (ECB) yesterday decided to raise its main lending rate by a quarter-point, to 4.25 per cent, the first hike since Malta joined the eurozone at the beginning of this year.
The widely expected decision, taken by the bank's governing council, which includes Malta's Central Bank Governor Michael Bonello, follows the publication of data at the beginning of the week showing that eurozone inflation had reached an all-time high of four per cent last month, way above the ECB's inflation target of two per cent and below.
The decision will mean that the Maltese will have to fork out more on their mortgage loans while earning higher interest rates on their savings.
The president of the ECB, Jean-Claude Trichet, said the Bank expects inflation to remain "well above the level consistent with price stability for a more protracted period than previously thought".
However, he insisted that the eurozone's economic fundamentals are sound despite recent data that confirmed a weakening of GDP growth in the second quarter of this year.
"Against this background and in full accordance with our mandate, we emphasise that maintaining price stability in the medium term is our primary objective," Mr Trichet said.
"This will preserve purchasing power in the medium term and continue to support sustainable growth and employment in the euro area."
Bank of Valletta raised its bank base rate to 4.25 per cent with effect from Monday.
With effect from Monday, the interest rates on euro denominated savings and term deposit accounts will increase by 0.25 per cent p.a. Similarly, debit interest rates on loans and overdrafts as well as on credit cards will be revised upwards by 0.25 per cent p.a. with effect from the same date.
HSBC Bank Malta adjusted its base rate to 4.35 per cent.
HSBC launched a home loan base rate (HMLR), which it set at 4.25 per cent. The HMLR will be the base for the bank's variable mortgage lending.
HSBC Bank Malta also raised the rates on a number of its savings and deposit accounts.
In some instances this rise is above the increase in the ECB rate rise to make the bank's products more attractive and to encourage further savings, HSBC said.
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Comments
We HAVE to raise them because we are in the Euro Zone, so whether you like it or not we have to dance to someone else’s music.
Malta has a very small economy, in fact smaller then a small UK Borough, and we used to control inflation by giving less then inflation cost of living increases and more or higher taxes, + controlling the value of our Lira according to our own needs.
Large economies like France, Germany and UK, reduce money in circulation by making people borrow less and therefore spend less to reduce prices.
At the moment there is a lot of imported inflation, even in the EU, so if the rates keep going up, it means that we are then crushed under all this weight, because our disposable income is miniscule when compared to that in Western Europe. This is one of the reasons that PN kept this information secret from the public and more then 75% of the public do not even know that ECB would now control our interest rates.
In short BLAJTUH! Issa min tnellah b'min? That is the question!
Real interest rates (ie real interest after one deducts inflation) are actually very low. With inflation at around 3.5% now, real interest rates are less than 1% on fixed deposits and interest rates on savings accounts are negative.
Savers are still having a very raw deal fom the banks. Borrowers would obviously disagree, but savers need higher interest rates, not lower ones. After all, the money people borrow from the banks actually come from deposits savers have made.