ECB continues buying coronavirus pandemic bonds - The ECB keeps buying bonds due to the pandemic and will tolerate inflation above 2 for the first time.

The European Central Bank has announced that it will keep stable its package of purchases of bonds worth 1.85 trillion euros and interest rates at all-time lows. It has also maintained a relaxed tone when it comes to price increases, tolerating inflation above 2% for the first time.

The governing council of the ECB has noted that its coronavirus pandemic bond purchase programme will continue to move forward at a faster pace than at the beginning of the year, in an effort to keep market interest rates low as the eurozone economy recovers from the pandemic.

ECB continues buying coronavirus pandemic bonds

It has pointed out that its key deposit rate would remain at the all-time low of -0.5%, while the other central bank rates would also remain unchanged.

The ECB has also adopted a more moderate tone with regard to interest rates. He said he expects rates to remain at current or lower levels, "until inflation reaches 2% well before the end of its projection horizon [until 2023] and durably over the rest" of that horizon.

The main objective of the ECB is to maintain price stability in the euro area, however, has claimed that the new measures "may also involve a transitional period in which inflation is moderately above the target", according to the ECB in a statement signed by its president, Christine Lagarde, and his vice-president, spain's Luis de Guindos.

ECB continues buying coronavirus pandemic bonds

This language change comes 2 weeks after a policy review in which the ECB set a new inflation target of 2%, rather than "just below" that level. He also advanced that inflation could exceed that level without the central bank having to react.

Analysts believe that the change in orientation has shown that the ECB is committed to maintaining support for the economy despite rising inflation. Prices rose 1.9% through June and 2% through May, but the ECB expects inflation to fall again towards the end of the year.

Lagarde explained that the ECB has changed its orientation "to underline our commitment to a persistently accommodative monetary policy stance to meet our inflation target." "There is still a long way to go before the damage to the economy caused by the pandemic is compensated," he added.

ECB continues buying coronavirus pandemic bonds

In the statement by Lagarde and Guindos, they highlight that the economy is recovering, as the restrictions on mobility imposed by the pandemic are relaxed, and they predict a good progression within the manufacturing sector.

However, the ECB is issuing a warning to two of the main Spanish economic sectors. "The reopening of large parts of the economy is driving a strong recovery in the services sector, but the delta variant of the coronavirus could slow it, especially in tourism and hospitality," they warn.

ECB continues buying coronavirus pandemic bonds

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Borrowing in Spain is more expensive than other European countries and yet 25% of Spaniards plan to borrow in the next 6 months

The end of the state of alarm, vaccines and in general the feeling of economic recovery has filled Spaniards with optimism, who have jumped to ask for credit. Those that are most requested each year are destined to obtain liquidity and refinance debt.

However, these 2 categories show a slight decrease in the month of June. At the same time they increase the credits to be able to travel or buy a car. Precisely these 2 were more penalized last year, when traveling was impossible and the 3 months of home confinement paralyzed the sale of cars.

According to the III Barometer of consumer loans made by Asufin, currently 1 in 4 consumers plan to take out a loan in the next six months. This shows a rise from 19.2% in January to 24.1% in June. Just a year ago, it was 14.2%.

In Spain, 23% of the loans requested are to obtain cash and 15.4% to settle debts. Despite the slight decline they experience, they are still the most popular.

The recovery of employment, especially in the months of May and June, and the continuity in the ERTE, for activities still affected by the restrictions of the pandemic, bring with it an improvement in family income and, with it, in their financial capacity.

Therefore, the need to obtain money goes from 34.5% in January to 22.7% today. A year ago, it stood at 30.9%. Something similar happens with debt refinancing. These types of operations are articulated when the debt rate is significant. It goes from 19.1% in January to 15.4%, right now. A year ago, it stood at 10.2%.

The purchase of a vehicle (17.9%), studies (13.1%) and travel (7.2%) are next on the list. Regarding the second, it is the money that is borrowed to be able to pay the fees of the incoming course. Although the rise is very small (in January it stood at 12.9%) it remains at very high rates.

The heading of holidays and travel is the one that experiences the greatest growth, although it was the most punished the year of the outbreak of the pandemic. The intention to ask for financing to go on vacation was in June 2020 at 6.2%, in January of this year it fell to 1.1% and currently rises to 7.2%.

Borrowing money from the bank to buy a car is a classic this time of year. Traditionally between April and August much of the acquisition of vehicles is concentrated, so the intention to ask for financing has risen from 13.1% in January to 17.9% today.

The study highlights that, despite the increase in demand, Spanish banks make it difficult to access loans, as was the case with the previous financial crisis, with higher interest rates.

While in the euro zone they have lowered their loan rates slightly, in Spain they have increased it in all the term tranches and significantly. In June alone, the spread in short-term loans with the countries around us has already risen to 4.87%, the highest level since 2018.

Asufin draws attention to this behavior, because it takes place when delinquency is still very contained in the consumer segment, which remained at 4.5% in the first quarter of 2021, the same rate as the two previous quarters.

For this reason he warns that it can be a dangerous signal and recalls that in the previous financial crisis, a difference of 7% was reached, in 2014, between the price of Spanish short-term loans and the European average.

Vehicle financing is still the cheapest, but interest rates have risen. In loans from 1 to 5 years, Spanish banks have gone from offering 8.79% to 9.46% APR on average (0.67% more) and in loans over 5 years, from 9.01% to 9.53% APR (0.52% more).

In short-term loans, CaixaBank offers the most expensive (the rate is 11.89%), followed by Deutsche Bank (11.65%) and ING with 11.23%. On the other hand, the cheapest and lowest is Cofidis, with 6.12% APR.

For long-term loans over 5 years, the average is 9.44% APR. Deutsche Bank is the most expensive (11.53%), followed by Cofidis (11.52%) and Caixabank (11.46%). The cheapest is Ibercaja with 6.94%.

The study explains that, although demand for car loans has partly recovered, consumers are not seduced by state aid. The increase or partial recovery in the intention to acquire a vehicle is based on saving or seeking consumer financing and not so much on state aid.

Unlike what happened a few years ago with the PIVE plans, articulated in time for the summer campaign, the current MOVES III Plan, which offers up to 7.700 euros for the acquisition of new non-polluting vehicle, has not yet been launched in any community.