The stimulus measures of the Good Finance ensure the current low mortgage interest rates. There is a good chance that these will be expanded. This is our interest rate forecast for November.
Inflation remains too low
The European economy is recovering, but not as quickly as the policy makers hope. The inflation (overall price increase) of October comes out at 0% compared to a year earlier. In September this was still below zero, with -0.1%. The reason for this lies largely in low energy prices. If these are not included, the inflation rate is 1.1%. This is still less than the desired inflation of just under 2%.
Growth slowdown emerging economies
Policymakers are also concerned about the slowdown in growth of the emerging economies. One pays close attention to developments in China. The most recent figures show that Chinese industry contracted again in October. This can pose a danger to the European economy.
Draghi hints for extra measures
The ABC President, therefore stated that the central bank may be expanding the stimulus measures .
- Up to and including September 2016, 60 billion is pumped into the economy every month. The ABC may decide to intensify and / or extend the purchase program.
- The other possible measure is a further reduction in policy interest rates. These could become negative.
These incentives make more credit available, making borrowing cheaper. Saving, on the other hand, becomes unattractive. This should raise demand and ultimately prices.
Next board meeting
The next governing board meeting of the ABC will take place on 3 December. This will decide whether the central bank will take additional measures . Until then, various working groups are analyzing the current economic and monetary situation in Europe. Much will depend on the development since the last estimates in September.
For many analysts and investors it is a foregone conclusion that the ABC will expand the stimulus measures. Immediately after Draghi’s words, the financial markets rebounded and stock prices rose. Investors get confidence because they know that if there is insufficient growth / inflation they can count on the central bank. However, it is too early to expect a change.
We therefore expect the mortgage interest rate to remain at its current low level in November. Tip: register for the Interest Rate Flash and follow the mortgage interest closely .