Local borrowers will not face any immediate changes to their home and personal loans after the European Central Bank announced plans for an increase in interest rates, a senior banker has said. 

However, this could change later in the year as inflation and other pressures impact banks across Europe. 

The ECB has said it intends to raise interest rates next month.

This will be the first time it has done so in more than 11 years and comes as it tries to control soaring inflation across the eurozone.

High inflation is a major challenge for all of us- ECB head Christine Lagarde

Announcing the decision, the ECB said it would raise its key interest rates by 0.25 per cent in July, with further increases planned for later in the year.

The move means that many across Europe can expect to face higher interest rates on their home and other personal loans. 

In Malta, however, lenders are understood not to be planning any immediate hikes in repayment rates for local clients.

This, industry insiders say, is because Maltese banks have very little exposure to ECB loans and are, instead, almost entirely financed through customer deposits. 

No changes planned to interest rates right now

Marvin Farrugia, head of Asset-Liability Management at APS Bank, said local borrowers should not be alarmed by the ECB’s announcement, saying they will not be affected.

This stand was reflected by a senior source at another of the island’s largest banks, who said there were no changes planned for the immediate or foreseeable future to interest rates charged to customers.

That said, the future could bring with it new developments with further increases planned at the ECB for as soon as September. 

The only customers who may be impacted in the immediate term are large local corporations which have taken loans so big that they are pegged to a series of international interest rates. 

These loans are known as Euribor, short for Euro Interbank Offered Rate, and generally refer to the price at which European banks lend money to each other. 

Some of the largest loans taken out by corporate customers in Malta are based on this system. 

The latest eurozone inflation estimate stands at 8.1 per cent, which is well above the ECB’s threshold.

'Not a step but a journey'

“High inflation is a major challenge for all of us. The [ECB] governing council will make sure that inflation returns to its 2% target over the medium term,” the ECB said in a statement.

“It is not just a step, it is a journey,” ECB president Christine Lagarde said of the move.

The ECB’s move comes a delicate moment for the economy.

The war in Ukraine has both pushed up prices and added to supply chain disruptions, putting further strain on households and businesses.

The Russian invasion comes as economies were hoping to begin a post-pandemic recovery. 

In response to the invasion, the European Union has sought to reduce its reliance on Russian energy imports and is looking at an embargo of Russian oil that would add to the economic stress.

So, as with the state of the economy, the future of the banking sector remains uncertain.

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