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At least two generations of labour market participants had never experienced positive real interest rates and were paying very low rates on their borrowings until just over a year ago. Today, monetary policy remains immersed in an intense and complex battle to stem inflation. The most obvious consequence has been a quick succession of interest rate increases. In the eurozone, the price of money has been rising for over 18 months, significantly increasing borrowing costs for households, companies, and governments. Credit has already contracted substantially, and the cost of debt has increased. Indeed, the increased cost of money has driven a slowdown in mortgage flows to year-on-year rates of growth of 2.5% as of July 2023. At the same time, however, the banks’ pre-tax earnings over average total assets had increased from 0.8% to 1.1% in the first quarter of 2023 and the spread between asset and liability rates had increased by just 0.1pp to 1%. Lastly, the cost of public debt has increased considerably. Since 2021, the cost of issuing 3-year bonds in Spain has increased by 3.75pp, while the cost of issuing 10-year paper has increased by 3.16pp. As acknowledged by the heads of the central banks themselves, it is unclear how long it will take for these policies to have their intended effects. The monetary authorities’ key message is that the approach has to remain conditional until uncertainty around inflation dissipates.

Carbó, S. y F. Rodríguez (2023). «One year of rate increases: Impact assessment». SEFO – Spanish Economic and Financial Outlook 12, n.º 5 (septiembre): 23-29.