Ivan Camilleri
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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B Agius
Jul 5th 2008, 06:20
@A Daley. You are pretty spot on with your descriptions regarding inflation. By the same token, Malta now needs to find ways of increasing productivity which is the way to improve on real incomes. This is now the challenge the Government set itself (or finds itself having)and it will be increasingly judged on this by the Maltese electorate. It set itself high aims of raising Maltese living standards to average European levels. If it doesn't, having joined the Euro, there is nowhere to hide. It will be the challenge of any Maltese Government of the future.
A Daley
Jul 4th 2008, 20:16
j zammit, since when do we control inflation by raising interest rates in Malta?
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!
Angelo Desira
Jul 4th 2008, 18:53
W hen we are in this season of this hot summer we have shocked from food prices,fuels the 95% surcharge for the electricity bills and now we have another shock of .25 on the base rate on bank loans. Is their another shock? Families in the middle class can afford anymore ?
J Zammit
Jul 4th 2008, 18:21
Interest rates should reflect inflation and are actually a means to dampen inflationary pressures.
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.
Alexander Morana
Jul 4th 2008, 16:58
Ha ha ha. There you all have it now. Brussels will dictate the raise and fall of interest rates, not the Malta Central Bank. The more money the Malta government borrows to sustain an artificial standard of living and the bankrupt Malta Dry-docks it will cost more, thus higher taxes if the government intends to balance the ever spiraling deficit.
John Spiteri
Jul 4th 2008, 15:26
that's what happens when you hand over your economy to unaccountable bureaucrats and bankers in Brussels, Strasbourg and Frankfurt. The one size fits all policy of the EU will increasingly threaten our standard of living. without political union a currency CANNOT survive - more so across a continent with countries that have such different economies and needs. this is one of the reasons why the eurocrats are so desperate to create a super state, irrespective of what lesser mortals think. The folly of creating a single currency as a tool to force political union is about to haunt its proponents with a vengeance. not only was it a bad idea for european economy, but it is also bound to derail the 'project' itself. it is only a matter of time.
Ivan Galea
Jul 4th 2008, 12:05
I do not agree at all with HSBC comments that this move will encourage more savings. One has first to see the direct impact of this rise ie higher mortagage rates, higher costs for companies to service their borrowings which in turn will pass these increase to the customer. The guys at ECB should have known that the current inflationary trend is not due to excessive demand by consumers but is due to the rapid increase in the price of raw materials. Infact demand in Europe is falling each month and with this latest move should fall further, with energy prices continuing their upward trend unabated. Unfortunately this latest move by the ECB will only bring further hardships to the citizens of the EU, including Malta, who are already suffering from the spiralling energy and living costs.
B Agius
Jul 4th 2008, 11:24
It's better now : it's not the Central Bank of Malta or , by implication the Government, that raises rates.