A clear fact is that interest rates on personal loans in Europe have been lower than ever. Anyone who now thinks of planning a credit-financed investment should not find a better time than now. Thus, the Deutsche Bundesbank estimated the average annual percentage rate of interest on personal loans of German banks at 5.62 percent in March. In February this was still at 5.82 percent, in January at 6.06 percent. Whether this downtrend continues to continue in this mass remains to be seen, but one should not necessarily rely on this trend. Because it is quite possible that this trend will reverse and interest rates will rise again. Ultimately, the European central bank responsible for interest rate regulation can not perpetuate the zero interest rate policy forever. It is not only financial experts who realize that interest rates on personal loans must rise. That this will happen is for sure, the only question is: When? If one looks at the economic and political situation in Europe, there are 4 signs of an immediate turnaround in the interest rate of consumer and consumer credit.
The fact that the ECB’s low interest rates are working and boosting consumption is reflected in banks lending more. According to the Central Bank, the number of loans granted both to businesses and to private households in April increased by 2.4 percent compared to the previous year. The economic recovery is also gaining momentum. In the first quarter of this year, the economy in the eurozone grew faster than in the first quarter of the previous year. And inflation in the euro area was a 1.9% hike in the ECB’s inflation target in April. There are no longer many reasons against the ECB raising interest rates in the foreseeable future.
Several ECB members clearly advocate a timely increase in key interest rates. According to them, the time had now come to initiate the exit from the expansionary monetary policy. The key question is just how quickly the support for the economy offered by the central bank can be reduced. And in a way that ensures that a positive economic development remains permanently secure. However, an opinion that the ECB President does not (yet) share. He argues that core inflation, which means those without energy and food prices, is not enough. Thus, the desired increase in inflation is still not sustainable enough. In this respect, an exceptional level of monetary policy support remains justified for him.
The fact is that with the purchase of government bonds and the maximum lowering of the key interest rate to 0.00%, the ECB has already used its two strongest tools to the maximum. This means that should there be another economic crisis in the near future, the ECB will have little further opportunity to rebalance such a crisis. No more aces up her sleeve to respond to the new crisis. Because the key interest rate can not be lowered further, without the banks getting into great difficulties. Already, the zero interest rate policy is a disaster for savers. If it comes to a negative interest rate, would mean the final withdrawal of savers from corresponding “offers” = capital withdrawal at banks. If, by raising key interest rates, a gradual exit from the current expansionary monetary policy were to be pursued, this would also serve to prepare the eurozone for the next possible crisis in the current phase of the economic recovery.
Decisive for the exit from the expansionary policy and the consequent increase in interest rates on personal loans could again be US interest rate policy. Thus, the US counterpart to the ECB, the FED since December 2015 has already raised the key rate three times, in June 2017, there is another interest rate decision. If the ECB could wait until the middle or even the end of 2018 with a rate hike, it would be almost three years behind the FED. From a historical point of view, this would be very unusual, as the FED was usually regarded as the “default” of the ECB’s interest rate policy. As a rule, interest rates on euro area lending generally followed the US market only with a small time lag.