What’s happening here?
The European Central Bank (ECB) has announced recently that it will take cautious steps when considering raising the interest rates.This slow approach will ensure a continued growth of the eurozone economies and avoid repeating the mistakes of 2008 and 2011.
Why is it important?
Ever since the financial crisis of 2007, the ECB have acted to support and protect the economies of the eurozone by buying different types of securities, especially government bonds, to keep the interest rates as low as possible. This in turn pushes people to spend more, for example, by borrowing more money and therefore contributing to growing the economy. This programme – quantitative equity (QE) – is expected to last at least until September 2018. It comes as a surprise to some analysts who expected the bank to start withdrawing its aid system sooner due to the Eurozone economy showing strong signs of growth.
How does it affect me?
This is good news for people looking to buy property in France. With the bank promising to spend €30bn a month on buying bonds, the interest rates will not rise across the Eurozone, at least not drastically. This applies to any type of loan and especially to interest rates for French mortgages. Commentators in France have noted that interest rates slightly decreased in October and now, on average, you can obtain a French mortgage interest rate in the region of 2%. The president of the ECB, Mario Draghi, has said that it is likely the bond-buying scheme will continue beyond September next year. With this in mind, borrowing money in euros looks set to remain attractive. This is especially true because of the continued strength of the euro despite the uncertainty of Brexit negotiations. Furthermore, French property prices, which have seen healthy growth in recent times (cf. 7% on average in Paris alone), are a good investment alternative to make your money work harder as opposed to the low-yielding savings accounts.
The bigger picture
The ECB has been criticised for not outlining a more daring programme to scrap QE. Especially when the Federal Reserve Bank, has already decreased its buying scheme. The American economy has continued to show strong growth in year to date. In spite of this sceptical view from economists, the ECB’s announcement translates to greater stability of the countries with common currency and fingers crossed avoiding stagnation of the economic growth.