Medina announces mechanism to create stability in the face of interest rate increases

Minister also announced the extension of interest subsidies on housing loans.

The Minister of Finance, Fernando Medina, announced today the creation of a mechanism to create stability in the face of rising interest rates, after a new rise, also announcing the extension of the interest subsidy on housing loans.

“What the Government is doing is precisely to create a mechanism to further protect these families in relation to the movement of interest rates, to create a situation of predictability, of stability, at the same time that we will expand access to credit subsidies, that is, to support that we give to those families that, reaching a certain income level, are currently experiencing a very significant effort rate”, said Fernando Medina.

Speaking to Portuguese journalists at the entrance to the informal meeting of European Finance Ministers, in the Spanish city of Santiago de Compostela, as part of Spain's presidency of the EU Council, the minister pointed out that, “in fact, there are many families who, As a result of these recent increases, the cost of housing has risen significantly and the impact this has on their budgets”.

“Therefore, we have to look particularly at these families,” he added.

According to the minister, the Government has been “working very intensely in recent months” to mitigate the impact of the successive rise in interest rates with the Bank of Portugal and the Portuguese Banking Association and, thus, “build a solution that is effective, solid for Portuguese families”.

The specific measures will be approved by the Council of Ministers next week.

“All the details will be public then, [but] we are working to, on the one hand, stabilize payments during a certain period, that is, to give peace of mind to families in a period of rising interest rates so that we can, somehow , protect it from uncertainty and the risk of fear of these successive rises”, stated Fernando Medina.

Furthermore, “the second line is the extension of support for interest subsidies for those families that currently have effort rates above 35% and, above all, for those who currently have effort rates above 50%”, he said, adding that the executive will “expand access criteria” to “facilitate families’ access to this subsidized interest support”.

The position comes after, on Thursday, the ECB announced a new increase in the three key interest rates by 25 basis points, as in the previous meeting, placing the deposit rate at the highest level ever in the euro zone.

In the statement released after the Board of Governors' monetary policy meeting, the ECB informs that the interest rate applicable to main refinancing operations and the interest rates applicable to the marginal lending facility and the deposit facility will be increased to 4,50%, 4,75% and 4,00%, respectively, with effect from September 20, 2023.

This was the tenth consecutive interest rate hike by the central bank, which has increased interest rates by 450 basis points since July last year, the fastest rising cycle in the history of the euro zone.

The inflation rate has been falling in recent months after recording historic values ​​due to the reopening of the economy post-Covid-19 pandemic, the energy crisis and the economic consequences of the war in Ukraine, but still above the 2% target set. ECB for price stability.

To achieve this, the ECB has tightened monetary policy with successive increases in interest rates, now at a slower pace, a situation that has led to lower consumption.

Given this scenario, euro zone finance ministers will today discuss the macroeconomic context in the single currency area, and must insist on commitments to budgetary prudence.