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Last train for investment?

Several directors of the European Central Bank (ECB), including its president Christine Lagarde, have confirmed the rise in interest rates at the end of the third quarter with the aim of alleviating the inflation that most of the continent is going through due to the years of the pandemic and, recently, the armed conflict in Russia and Ukraine and the shortage of products derived from the conflict. The measure will have a direct impact and it is estimated that will curb consumption, investment and we will have to be aware of how it affects the economic balances of families and companies.

After six years in Europe, and after two in the United States, interest rates are rising again. In the US since March and in the euro zone it is announced that for July. This announcement has several readingssince it is bad news for investors and citizens who have variable-rate loans or credits, but good news for savers.

This rise in rates does not mean more or less that the money is going to cost more, for each euro that we borrow we will have to repay it with higher interest. That is, until now, the banks were receiving money from the ECB with an interest of up to -0.5%, that is, they had to return less money than they had requested. With this, the aim was for there to be a torrent of liquidity throughout Europe, to alleviate the 2008 crisis and that both families and companies could request money at interest rates close to zero to undertake their expenses and projects.

For example, the volume of SMEs in Spain is very high (99.9% of the business fabric), and many of them resort to loans, either to pay bills, carry out reforms, acquire new premises, machinery, etc. It is a fairly widespread practice, especially in recent years where there was that abundance that we were talking about before, and this allowed them to ask for money at very low rates.

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Getting back to the fact, not just small businesses; the government and consumers will also notice the increase. Mortgages will rise, the State will have to pay 6,400 million euros more to finance the public debt, but it is expected that, with a return to normality on the supply side and lower consumption, inflation will progressively drop, until in the next two years it will be at more normal values ​​of between 2 and 3%.

Given the ECB’s announcement and with the expectation that they will also feel the increase, many banks are raising credit rates. The deposits that previously had a negligible or almost zero return, and the mortgages that were really cheap and did not constitute a benefit for the banks, are now going to be attractive products for them again.

In conclusion, it depends on the situation in which we find ourselves, it may be a good time to invest, still taking advantage of those negative or null rates, and on the contrary, it would be more prudent to wait for those rates to rise if what we want is to save by making a deposit at a fixed rate or invest in bonds and fixed income, since they will benefit from this increase.

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For companies, it can be one last “free” money train to be able to invest in their projects, knowing that when interest rates rise they still have the backing of European funds as an emergency cushion.

Dositeo Amoedo, president of the Association of Educators and Financial Planners (AEPF).

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