The European Central Bank (ECB) has kept interest rates unchanged for the seventh meeting in a row, but fresh warnings from its president Christine Lagarde suggest a rate hike could be just weeks away.
Speaking after the latest decision, Lagarde pointed to growing risks on both sides of the economy.
‘Upside risks to inflation and downside risks to growth have intensified,’ she said, creating a combination that is putting the ECB under increasing pressure to act.
The eurozone economy is barely moving, growing just 0.1% in the first quarter of the year. At the same time, inflation has picked up again, reaching 3% in April, representing its highest level since September 2023.
Much of that increase is being driven by energy, with prices jumping 10.9% in a single month.
For now, the ECB is holding off. Its next key meeting is set for June 11, and many analysts believe that’s when the first rate rise in nearly three years could happen.
The delay reflects uncertainty. Ongoing geopolitical tensions, particularly linked to conflict in the Middle East, are making it harder to predict how the economy will behave.
Some experts believe the ECB will move cautiously, while others think weaker growth could limit how far rates can rise.
Any increase would have a direct impact on households, especially those with variable-rate mortgages.
The Euribor, which most of these loans are tied to, has already risen for the second consecutive month, reaching an average of 2.74% in April.
That could mean homeowners paying over €1,100 more per year when their mortgages are updated.
Banks are already reacting. Some have begun increasing borrowing costs and tightening lending conditions, making it harder to access credit.
Higher rates don’t just affect mortgages. They can slow down spending and investment, as both households and businesses face higher costs.
That’s a concern for the ECB, given that consumption and investment are key drivers of growth.
There is one upside. Savers may start to see slightly better returns, as banks tend to raise interest on deposits when rates go up.
For now, the ECB’s main deposit rate remains at 2%, with other key rates also unchanged.
