What is the Limit of Bank Interest Rate Increases That Borrowers Can Manage?

Despite facing a difficult situation, the European Central Bank decided to increase interest rates significantly last Thursday. This decision was made due to concerns regarding the stability of the banking system following the Swiss banking company Credit Suisse's significant decline in value the day prior.

The ECB has been increasing interest rates rapidly since last summer to address the problem of high inflation in the eurozone. Furthermore, it has made a commitment to raise borrowing costs by 0.5 percentage points, as was evident in the recent week.

However, the current concern is how many more hikes in interest rates can borrowers financially manage?

The ECB aims to lower inflation to less than 2% by 2025 as its main goal, and Christine Lagarde, its leader, has stated that interest rates have no limit.

However, an increasing group of individuals are urging the ECB to consider how raising the price of money may affect the actual economy. This includes the potential of more bad loans and a decrease in the speed of credit growth.

Regarding rising prices, it is expected that the main component contributing to this, which is the cost of food, will not decrease significantly until the summer season. This is despite the fact that prices for energy have stabilized. The reason for this is that the production costs of raw materials and manufacturing processes need to undergo a full cycle before any significant changes in prices can be seen.

Actually, a few experts have stated that the weight of expenses associated with finance, stemming from the increase in interest rates, will worsen the circumstance and evidently impede the slowdown of inflation in edibles.

The current feedback scenario has raised worries amongst various groups, as everyone anticipates the market's response after the interest rate hike is implemented.