The European Central Bank (ECB) announced two interest rate hikes on Thursday, causing some turmoil in the financial markets.

Key interest rates are to rise by 0.25 percent in July, and a sharper interest rate hike of 0.5 percent has been announced for September.

At the same time, ECB President Christine Lagarde was rather tight-lipped when it came to countermeasures in the event that the bond yields of individual euro countries should get out of hand - that the yields rise or their gap to the Bunds, which are considered to be fail-safe, widens.

Some investors in the bond markets had already hoped for the presentation of a new monetary policy instrument that had recently been discussed in the Governing Council of the ECB.

Christian Siedenbiedel

Editor in Business.

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The German share index Dax, which had already reached a monthly low on Thursday, was still under pressure on Friday.

At times it fell below 14,000 points.

Real estate values ​​were particularly hard hit.

The Stoxx Europe 600 Real Estate sector index fell to its lowest level since November 2020. The shares in the residential group Vonovia temporarily lost 4 percent in value in the Dax, Deutsche Wohnen and TAG Immobilien lost around 5 percent in the M-Dax and Instone in the S- Dax even down by 8 percent.

Higher interest rates tend to be seen as bad for real estate companies, but rather beneficial for banks.

The prices of European government bonds also tended to fall further.

The yield on the trend-setting ten-year federal bond, which had reached an eight-year high of 1.47 percent on Thursday, was slightly lower on Friday at 1.44 percent.

However, the yield increase on southern European government bonds continued: Italian paper with a term of ten years at times yielded 3.7 percent - this had not been the case since October 2018 - corresponding Spanish paper at 2.7 percent, Greek at 4.4 percent .

The euro, on the other hand, was not able to benefit from the announced interest rate hike; the exchange rate against the dollar had already weakened noticeably on Thursday.

Michael Heise, economist at HQ Trust, was amazed at the strong reaction of the markets: "Perhaps the markets were hoping for more specific statements on how the ECB will counteract a possible fragmentation of the euro countries," he said.

Matthias Hoppe from the fund company Franklin Templeton said that the Italian government bonds would have reacted particularly strongly to the announcement of the end of the net bond purchases - because they were particularly affected by the bond purchase program.

"Pigeons" are not happy

Overall, the ECB appeared to be more “hawkish” on Thursday, i.e. more geared towards tightening monetary policy, than some investors had thought.

The “doves”, i.e. the advocates of a loose monetary policy in the ECB Council, are also reported to have left the Council meeting in Amsterdam “displeased” at the end: “My impression is that everyone has lost,” quotes the Financial Times newspaper ' an unidentified council member.

The economist Karsten Junius sees the ECB, which had a dove majority for a long time, now firmly in the hands of the hawks - because the undecided members have changed their minds under the pressure of the circumstances.

"The Falcons clearly prevailed and put pressure on Lagarde," Junius said.

In particular, the fact that the ECB promised interest rate hikes well in advance was unusual.

Some of the former central bankers who had supported a loose monetary policy for a long time were very critical of Lagarde's new line.

Former ECB President Mario Draghi, now Italy's prime minister, called for restraint from afar.

Former ECB chief economist Peter Praet criticized that the swing should have been accompanied by better communication about what to do if a rate hike violates the integrity of the monetary union with soaring bond yields in individual countries.

"The more you go hawkish on interest rates, the more you should clarify the transmission through country spreads," Praet told Bloomberg.

Consequences of the decision for savers

So what does all this mean for consumers?

So far, the building interest rates have risen the most, from less than 1 to around 2.8 percent for building loans with a ten-year fixed interest rate.

The first banks are already advertising higher interest rates for fixed deposits, as Horst Biallo from the consumer platform of the same name emphasizes.

However, these interest rates are still at levels well below inflation.

The interest platform Weltsparen, for example, reports an interest rate increase from 0.98 to 1.31 percent for the offers for fixed deposits for two years that it brokers.

Depending on how much interest rates rise, fixed-interest savings accounts could become more important again, according to the German Savings Banks and Giro Association: "An interest rate turnaround will certainly make savings products more attractive again." experience a renaissance – on the other hand, he considers a comeback of the savings account to be pretty much out of the question.

It seems more realistic that negative interest rates will disappear first.

A number of banks have announced that they intend to take this step in parallel with the ECB.

ING Germany wants to start doing this as early as the beginning of July – with new, significantly higher tax exemptions.

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