Where are the ECB's key interest rates heading?

Hello everyone,

we are currently considering regarding a new financing where the ECB key interest rates will go. At the moment, it looks like they will continue to rise after the historically low interest rate level, due to inflation. So inflation would first have to remain stable or decline in order for one to expect lower interest rates again?

What do you think?

The target is 2% inflation. If core inflation moves clearly in this direction, I will only then expect interest rate cuts.

The problem is that the ECB cannot influence inflation with interest rates at all. Because what drives inflation are things you need. Energy, food. It is hard to do without these.

Interest rates slow down demand for bigger things. Car, house, vacation. No one finances their shopping at Aldi on credit.

And that is where the danger lies. Interest rates choke off the economy, but neither affect the gas price nor the price of the apple. Double poison mixture. As soon as it really starts, we have the next financial crisis and interest rates fall.

we are currently considering a new financing and where the ECB key interest rates will go.

When is the financing due? It must be said that the key interest rates are not really the best indicator for mortgage rates and other long-term financings. Usually, these actually tend to run somewhat ahead of the key interest rates. You can see quite well that last year mortgage rates were already rising for months before the key interest rates were raised. Conversely, it has also been observed in the past that mortgage rates started to fall even before the key interest rates were lowered. A finance expert would have to explain why. I just remember something about a "short end" with the key interest rate and a "long end" with mortgage rates, which is why the latter prices in expectations for the future more strongly or something like that. This of course does not mean that the developments run completely independently of each other. Trends obviously run through both, and if someone tells you "I expect 10% key interest rates in 2 years," then such a development would also have an impact on mortgage rates. Roughly, I think the key interest rates will stay about the same for a while. Meaning, we have seen most of the increase, but I also don’t see any drastic cuts soon. Warning, layman’s opinion.

We are currently considering, regarding new financing, where the ECB key interest rates will go. At the moment, it looks like they will continue to rise after the historically low interest rate level, due to inflation. So inflation would first have to remain stable or decline before one could expect lower interest rates again?

I don't feel like writing another explanation about the key interest rate. Please use the search function here in the forum. The key interest rate has NO direct influence on mortgage financing rates (short-term interest rates for parking or borrowing money at the ECB vs. long-term financing on the capital market, for example through covered bonds); after the most recent increase, mortgage financing rates have fallen again.

What you can assume, however, is that the financing environment will not really get better in the next two years – rather more expensive than now.

Interesting will be (young) existing properties, whose price discounts can partly compensate for the interest rate increase (due to lower repayment requirements caused by the compound interest effect).
We have also recently lowered the minimum repayment rate to 1% even with higher maturities.

We have just lowered the minimum repayment to 1% even for higher loan amounts.

Does that mean from the bank's perspective? I find it interesting, but it is not that extremely surprising.