ECB rate hike deals further blow to Spaniards
Consumer group says many Spaniards are already struggling to cope with rising unemployment, higher food, fuel and electricity prices.4 July 2008
MADRID - Spanish consumer protection groups on Thursday lamented the European Central Bank's decision Thursday to raise interest rates by a further quarter of a point as a "hard blow" for consumers at a time when the domestic economy is already slowing rapidly.
The OCU consumer association said the increase in borrowing costs was a "hard blow" for households as it comes at a time when they are already struggling to come to terms with rising unemployment, higher food, fuel and electricity prices.
Manuel Pardos, the chairman of ADICAE consumer group, called on consumer groups, the banking sector and the government to meet to look for solutions for the "hundreds of thousands of Spanish households" finding it hard to meet their debt repayments.
The number of Spanish households unable to meet home-loan payments could triple this year, according to the Spanish Mortgage Association.
Inflation in Spain is running at a record 5.1 percent, eroding purchasing power. Meanwhile, the Organisation for Economic Cooperation and Development predicted unemployment in Spain would rise to 10.7 percent in 2009, the highest rate in the 30-member bloc.
The government has lowered its growth forecast for this year from an initial 3.3 percent to below 2 percent.
ECB President Jean-Claude Trichet had already flagged an increase of 25 basis points in the bank's key refinancing rate to 4.25 percent - its highest level in seven years - in order to rein in inflation.
"The monetary policy stance following [Thursday's] decision will contribute to achieving our objective," Trichet told a news conference in Frankfurt.
The ECB chief said he had "no bias" on further moves in interest rates, but also said there were upside inflationary risks in the medium term. "We will continue to monitor very closely all developments over the period ahead," he said.
Oil prices Thursday hit yet new record highs of close to USD 146, pointing to ongoing risks to consumer price stability further down the line.
The money markets had already factored in the latest hike by the ECB. The one-year Euribor rate - the key reference rate for setting mortgages in Spain - hit over 5.3 percent at the end of June.
That will mean an increase in annual mortgage payments of EUR 954 for a Spanish household with an average 25-year home loan of EUR 150,000 at a rate of 0.5 points above Euribor.
[El Pais / A. Sim / Expatica]