Lowering the ECB's interest rates would be costly for retail investors

Investments / Markets

The European Central Bank could make "further declines" in interest rates, among other measures to stimulate the economy. For borrowers, this is good news. For savers and bondholders, however …

That's what President Mario Draghi said on Tuesday for the second time this month, reacting markets. "Further cuts in key interest rates and mitigation measures to limit side effects are still part of our tools," said the Italian banker at the opening of the ECB's annual seminar in Sintra, Portugal. Already at the beginning of June, during its traditional monetary policy meeting, the Frankfurt Institute had discussed lowering rates, which have been kept at their historic low since March 2016.

But this eventuality may be already known, it has resulted in a strong reaction on the stock exchanges. A few months to hand over at the end of October, Mario Draghi spoke more generally of the "additional stimulus measures" that "will be necessary", if inflation continues to move away from the level slightly below 2% targeted by the institute . Among these tools are the net redemptions of badets, conducted for 2.600 billion euros between 2015 and end 2018 and which could resume, the ECB has "still a significant margin" to act, said Mr. Draghi.

Donald Trump denounces "an unfair advantage to the EU"

US President Donald Trump said Mario Draghi's new proposal would give the European Union an "unfair advantage" over the United States. "Mario Draghi has announced that new measures could stimulate the economy (European), which immediately dropped the euro against the dollar, giving them an unfair advantage to compete with the United States", denounced Mr. Trump on Twitter. Europeans "have been doing it for years with China and others," he added.

"European markets have climbed after comments (unfair to the US) made today by Mario D!" The President of the European Central Bank (ECB) had earlier mentioned, for the second time this month, a possible further decline in interest rates, among other measures to boost the European economy. "Further reductions in key interest rates and mitigation measures to limit side effects are still part of our tools," Mario Draghi said at the opening of the ECB's annual seminar in Sintra, Portugal. This eventuality being well known, it has led to a strong reaction on the stock exchanges.

What consequences for individuals

If this fall were to materialize, the impact would be significant on the real economy by facilitating access to credit for businesses. For individuals, the rates of mortgages and consumer should, good news, suffer further declines soon. On the other hand, for savers, it could be soup to the grimace, the rates remaining on the floor (close to 0) and the holders of sovereign bonds risk losing also some feathers.