The end of negative interest rates.  Finally !  - Finance

The end of negative interest rates. Finally ! – Finance

There are official statements that look technical from a distance, but when you listen to them have an impact on all of us.

Modern finance has its codes and its Latin, not to say its specific gibberish. Let’s just say it: a crazy, completely aberrant page of finance will soon be turned. At the end of September, the European Central Bank will raise its rates by 0.50%. This is what Christine Lagarde, President of the ECB, has just declared. For now the central bank interest rate is -0.50%. From the end of September, this rate will therefore no longer be negative, but positive again, even if it is only at 0% – 0%. It’s weird as a positive rate, but it was even weirder to have negative rates since 2014. Because having negative rates, as we have known them, was like paying to invest your savings and it came back to receive money to borrow. Something crazy, mad scientist and with which the stock market and the financial markets have lived since 2014.

This chapter of negative interest rates will therefore no longer exist from the end of September. On that date, finance will reconnect with the logic of our parents and grandparents. Small question in passing: why is the European Central Bank in a hurry to raise its rates? Quick and in principle obvious answer: but because raising interest rates makes it possible to fight against inflation. Agreed, except that the current inflation – look around – cannot be fought by raising interest rates. How a rise in rates will cool the rise in gas or oil or wheat. It’s a supply issue, not a demand issue. If a pallet with kitchen furniture is blocked in Shanghai because of China’s zero-covid policy, it lengthens lead times and increases prices. How will the rise in central bank interest rates unblock this palette blocked in Shanghai? Answer: nothing.

So do rising interest rates do nothing except make me pay more for my mortgage? Uh, not quite. If the central bank raises its interest rates, it is also to make the euro more attractive. As interest rates are higher in dollars than in euros, investors were buying dollars rather than euros and therefore the euro was in dangerous decline. This has not been the case for several days thanks to the rise in interest rates in Europe. The euro regained color against the greenback.

In fact, Christine Lagarde, by raising interest rates in the euro zone, is strengthening the course of the euro and therefore, automatically, she will lower the cost of our imports. Indirectly, via the course of the euro, Christine Lagarde will therefore lower inflation a little. It’s a subtle approach, but it’s very useful for the purchasing power of Europeans. What do we say to the President of the ECB? We say: Thank you Christine!

Modern finance has its codes and its Latin, not to say its specific gibberish. Let’s just say it: a crazy, completely aberrant page of finance will soon be turned. At the end of September, the European Central Bank will raise its rates by 0.50%. This is what Christine Lagarde, President of the ECB, has just declared. For now the central bank interest rate is -0.50%. From the end of September, this rate will therefore no longer be negative, but positive again, even if it is only at 0% – 0%. It’s weird as a positive rate, but it was even weirder to have negative rates since 2014. Because having negative rates, as we have known them, was like paying to invest your savings and it came back to receive money to borrow. Something crazy, mad scientist and with which the stock market and the financial markets have nevertheless lived since 2014. This chapter of negative interest rates will therefore no longer exist from the end of September. On that date, finance will reconnect with the logic of our parents and grandparents. Small question in passing: why is the European Central Bank in a hurry to raise its rates? Quick and in principle obvious answer: but because raising interest rates makes it possible to fight against inflation. Agreed, except that the current inflation – look around – cannot be fought by raising interest rates. How a rise in rates will cool the rise in gas or oil or wheat. It’s a supply issue, not a demand issue. If a pallet with kitchen furniture is blocked in Shanghai because of China’s zero-covid policy, it lengthens lead times and increases prices. How will the rise in central bank interest rates unblock this palette blocked in Shanghai? Answer: nothing. So do rising interest rates do nothing except make me pay more for my mortgage? Uh, not quite. If the central bank raises its interest rates, it is also to make the euro more attractive. As interest rates are higher in dollars than in euros, investors were buying dollars rather than euros and therefore the euro was in dangerous decline. This has not been the case for several days thanks to the rise in interest rates in Europe. The euro regained color against the greenback. In fact, Christine Lagarde, by raising interest rates in the euro zone, is strengthening the course of the euro and therefore, automatically, she will lower the cost of our imports. Indirectly, via the course of the euro, Christine Lagarde will therefore lower inflation a little. It’s a subtle approach, but it’s very useful for the purchasing power of Europeans. What do we say to the President of the ECB? We say: Thank you Christine!

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