ECB admits rates will rise higher than expected

The ECB admits rates will rise further than planned

Inflation was not transitory, and the rate hike will not be brief either. The ECB can no longer sustain the narrative: the price of money will have to climb higher than the bank itself anticipated. The admission comes as no surprise to those who had spent months warning that the ECB was acting too late; now the bill has come due.

A hot September, a year-end close above 4%

The scenarios circulating in the market do not rule out a 0.75-point hike next month, with the price of money exceeding 3% and closing the year above 4%. The harshest analysis calls for 5% immediately, on the logic that rates had been anchored in emergency territory for years while inflation ran rampant. The awkward question is why they waited so long.

Banks, the great hole in transmission

What nobody regulates is the other side of the coin: Spain's largest banks keep savings remuneration at 0% for most customers, while in other countries the same groups are already paying interest on deposits. The result is that rate hikes push up variable-rate mortgages at a cruel pace, but savers do not see a single cent. Add to that the real inflation accumulated since 2020, estimated at 25%, and official rates remain in negative territory: the ECB is raising rates from a hole in the ground. Meanwhile, the joke going around is that interest on Spanish public debt is paid back in Sugus candy.

September will bring a bigger move than usual, but the final destination for the price of money will depend on whether inflation eases before the economy breaks. The banks hold the key to transmission, and they do not seem willing to turn it.