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.