The European Central Bank (ECB) has decided to bring down inflation in the eurozone at any cost; although the price to pay is to freeze the economy (perhaps even a recession) and suffocate households and companies in debt in the form of more expensive mortgages and loans in general. The body chaired by Christine Lagarde approved this Thursday raising the three main interest rates in the eurozone by another 0.25 percentage points, the tenth increase in just over a year.

According to a quick financial calculation, an increase like the one approved this Thursday by the ECB would imply an increase in the cost of an average mortgage of 31 euros per month. However, mortgage holders do not notice the impact of each rate increase in an isolated and instantaneous manner.. They notice it when they have to review the interest on their loan with the Euribor, something that usually happens every six months or once a year.. In such a way that, when the time comes to update the quota, households notice the effect of several rate increases at once.

For example, a household with an average variable mortgage —150,000 euros for 25 years with a differential of one point over the Euribor— that has to review its loan in August is exposed to an increase in its monthly payment of up to 229 euros (35 %). A figure that reflects all the rate increases that have been registered in the last twelve months. On average, the 1-year Euribor so far in September stands at 4.076%.

The rise leaves the main funding rate – which determines the interest at which commercial banks can borrow from the ECB – at 4.5%, again the highest level since the single currency came into circulation in 2002.. This interest rate is the one that most influences the Euribor and, therefore, those mortgaged at a variable rate.. In addition, the deposit facility—the interest that the central bank requires from entities for depositing funds in their balance sheets—stands at 4%, another unprecedented record.

The ECB justifies its decision by saying that, although inflation has been reduced in recent months, its forecasts still indicate that it will remain “too high for too long.”. And although they recognize that past rate increases continue to be forcibly transmitted to the economy, they see it necessary to “reinforce progress” towards the medium-term objective of 2% pursued by the ECB.

However, the statement containing the ECB's decision includes an important twist.. And it opens the door for this tenth increase to be the last in this frenetic cycle without precedent in the history of the euro.. “The Governing Council considers that the ECB's official interest rates have reached levels that, maintained for a sufficiently long period, will contribute substantially to bringing inflation back to the target in due time,” the text reads.

A somewhat ambiguous phrase that Lagarde has read twice at a press conference and that she has tried to explain without clarifying with much success.. The president of the ECB has rejected that we have reached the highest point of the rise, but she has not stated the opposite either.. Of course, he has conceded that the debate now becomes not the level, but the length of time that interest rates remain so high.. “It is obvious that the focus is probably going to move a little more towards duration,” he said.

Analysts such as ING bank interpret the ECB's message as a sign of the beginning of the end. “The statement is clear: today was the last increase in the current cycle,” says Carsten Brzeski, head of Macro at ING.. “The ECB has implicitly said that rates are now at or very close to their maximum level,” notes Patrice Gautry, chief economist at Union Bancaire Privée.. “The market believes that the cycle of interest rate increases could have ended and, therefore, its reaction has been positive,” they add from the Spanish Institute of Analysts.. However, not everyone sees it that way.. For Deutsche Bank's chief European economist, Mark Wall, “the ECB has reserved the option to raise more if necessary”. “There is no declaration of victory over inflation,” he adds.

And now that?

The decision, as always happens when the ECB raises rates, will have multiple effects, over different periods of time and difficult to anticipate. But the most direct and well-known is that it will imply even more tension for the around 4 million Spanish families mortgaged at a variable rate. It will also contribute to further cooling the economy of the euro countries, a step probably necessary for prices to fall.