Another ECB Interest rate hike - will it curb inflation if banks don't pass it on?

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redstar

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So the ECB has increased interest rates by 0.5% today, with another hike to come in March.

The stated aim of these increases is to curb inflation by making it expensive to spend borrowed money.

But if Irish banks are not passing these hikes on in the form of variable rate mortgage increases or deposits (to incentivise keeping money on deposit rather than spend it) then surely inflation will not be reduced ?

Isn't the real cause of inflation down to;
- Energy prices soaring
- Lots of saved money (due to non-spending during the pandemic) being spent rather than earning very low deposit interest rates

I doubt if ECB rate rises will have any effect on this type of inflation.

Thoughts?
 
redstar said:
then surely inflation will not be reduced ?
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Irish inflation is so small as a share of euro area inflation as to be irrelevant to the ECB's mission.


Across Europe retail interest rates have reacted very sharply to the ECB and risen 200 basis points in the last six months.
 
redstar said:
But if Irish banks are not passing these hikes on in the form of variable rate mortgage increases or deposits (to incentivise keeping money on deposit rather than spend it) then surely inflation will not be reduced ?
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If they are not, perhaps. But they have been so your point is moot.
 
redstar said:
The stated aim of these increases is to curb inflation by making it expensive to spend borrowed money.

But if Irish banks are not passing these hikes on in the form of variable rate mortgage increases or deposits (to incentivise keeping money on deposit rather than spend it) then surely inflation will not be reduced ?
Click to expand...

Annual Inflation has been falling monthly in the EU and Ireland since October last year.
 
If they don't continue the increases then inflation could stall and take too long to bring it down to or closer to under 2%
 
ClubMan said:
If they are not, perhaps. But they have been so your point is moot.
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Aside from today's announcement by AIB regarding variable rates, which banks have been raising variable rates since the ECB started raising rates last July?
 
demoivre said:
Aside from today's announcement by AIB regarding variable rates, which banks have been raising variable rates since the ECB started raising rates last July?
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The fact is a lot of banks have been raising rates. So much so Irish banks now look competitive.

www.rte.ie

New Irish mortgage rates 3rd lowest in euro area

Interest rates on new mortgages remained unchanged in November, according to the latest figures from the Central Bank.
www.rte.ie www.rte.ie

The fact Irish banks are slow to the game doesn't impact the ECB's approach. Regardless our contribution to overall euro area inflation is negligible.
 
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