After years of holding interest rates at zero percent for the eurozone, the European Central Bank is having a rapid policy change as inflation runs out of control. Thursday’s decision to hike rates is a continuation of the move started with the 0.5% rise in July, and a trend we are likely to see continue to for some time.

With inflation at 9.1%, the central bank is rapidly hiking rates as it tries to cool demand in the euro area economy. Basically, the central bank is making borrowing more expensive in order to discourage spending.

While higher rates will help discourage future borrowing they will also serve to make any floating-rate loans or mortgages more expensive now, effectively taking money out of the pockets of consumers already facing huge energy bills.

Impact on farmers

Expectations are that the ECB could raise rates to 2% by early 2023, a move which would add €180 a month to repayments on a 20-year €200,000 mortgage.

The vast majority of mortgage holders in Ireland are on fixed rates, so the effect from these interest rate hikes may not be fully felt for some years in the mortgage market.

For farmers, any borrowing for the purchase on new machinery or stock will be more expensive. Outstanding floating rate loans will also rise in price as banks pass on the higher rates to customers.

The timing of the move, coming just as people face into what looks like a hugely expensive winter, will not be welcome by any, and will hit farmers, who tend to rely on shorter-term credit, particularly hard.