Construction financing: ECB raises interest rates for the tenth time

The European Central Bank ECB has raised the key interest rate for the tenth time in a row. The high interest rates are particularly noticeable in the construction and real estate sectors. Ifo President Clemens Fuest praised the interest rate move: "The ECB's rate hike is well justified." Read how other experts assess the move here.

The ECB Governing Council has decided on a further interest rate increase of 25 basis points. This puts the interest rate for banks' refinancing operations at 4.5 percent. The financing conditions for real estate purchases thus remain tense for the time being.

Christine Lagarde, President of the ECB, explained the decision as follows: "Inflation continues to decline. However, it is still expected to remain too high for too long. We are determined to ensure a timely return of inflation to our medium-term objective of two per cent".

"Inflation remains high despite the economic slowdown. The ECB has raised its inflation forecast for 2024, so against this background the interest rate hike is logical," says Ifo President Clemens Fuest.

Friedrich Heinemann, economist at the Leibniz Centre for European Economic Research explains: "This determination to fight inflation is above all a signal to wage policy: collective bargaining should be able to rely on a return to price stability by 2025 at the latest (...). Today's signal is important and valuable."

Commenting on the renewed increase in the key interest rate, Oliver Wittke, Managing Director of the German Property Federation (ZIA), says: "It was to be expected that the ECB would turn the interest rate screw up further. However, it must be clear to all parties involved that the tightening of monetary policy is putting the real estate sector under enormous pressure."

Prof. Dr. Moritz Schularick, President of the IfW Kiel, already commented on the previous key interest rate hike in July 2023 as follows: "The ECB has effectively shown its teeth in the fight against inflation, the inflation rate has roughly halved compared to its peak." And further: "The effects of the interest rate hikes are now clearly visible: the real estate market has collapsed (...)".

(Photo: © Moritz320, Pixabay)