Dr. Mark Cassidy:

Earlier this month, the ECB announced its latest monetary policy stance and what it expects to happen. It announced a reduction in the new asset purchases that it undertakes, that it will consider the future of asset purchases from the third quarter of this year, and that interest rates will only increase after asset purchases have stopped. That does not mean that asset purchases will finish from the third quarter but that it will be considered only at that time, and interest rates will not increase until after that. That is the official policy stance of the ECB.

Interest rates are abnormally low. At some time, interest rates will normalise. I will not put a timeframe on that. A normalisation of interest rates will affect floating rate mortgage holders first. Ultimately, it will affect those who have fixed rates of short duration. It will transmit through much of the market and lead to higher payments. We have looked at two scenarios. A one percentage point interest rate increase would lead to an additional repayment of approximately €130 each month. A two percentage point increase would lead to an additional repayment of approximately €260 a month. That would add to repayment issues. If that came along with the current severe pressures, that would make matters worse for households. Higher interest rates from the ECB will not bring down the current rate of inflation, which is currently 5.9%. That would not address the nature of the problem. Monetary policy acts with a lag. One cannot cure high inflation now. Higher rates could ultimately lead to stronger underlying demand pressures over the medium term, which need to be contained, otherwise higher inflation can set in.