GALP warns of ‘disruption' to Portugal's gas supplies
Portugal's finance minister Fernando Medina Photo: CARLOS M. ALMEIDA/LUSA

Finance minister confirms new mechanism to ‘create stability in face of rising interest rates’

Mechanism “should last two years; be accessible to all”

Portugal’s Minister of Finance Fernando Medina has today announced the creation of a mechanism to create stability in the face of rising interest rates, as well as the extension of the interest subsidy on mortgage loans.

Following on from yesterday’s decision by the European Central Bank to increase interest rates for the 10th consecutive time, he has told Lusa: “What the government is doing is precisely to create a mechanism to protect these families more from the movement of interest rates, to create a situation of predictability, of stability, at the same time as we extend access to the credit subsidy, that is, the support we give to those families who, being at a certain income level, are today at a very significant level of effort.”

According to Expresso, families with mortgages will be able to opt for the solution that will immediately reduce the interest rate associated with their loan/s, fixing a value that will be payable for the next two years.

“After this period, in a gradual way, the reduction will be compensated in following instalments until the end of the period of the loan.

“In practice, families will end up paying the same – and the banks will receive the same – but the value of the debt and the actual ‘effort’ created by the increase in interest rates will be distributed in a much more stable way over time – principally in this phase in which the Euribor rates are at maximums for several years.

“The expectation is that in two years time (these rates) will have reduced, and it will be able to accommodate the compensation without (financial) complications”.

Speaking to Portuguese journalists this morning 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, Mr Medina stressed the executive’s awareness of the difficulties being suffered right now by so many Portuguese families.

According to the minister, the government has been “working very hard in recent months”  with the Bank of Portugal and the Portuguese Banking Association to mitigate the impact of the ECB policies.

As the prime minister has already intimated, the specific measures will be approved by the Council of Ministers next Thursday.

In Expresso’s understanding, the mechanism “will be accessible to every client with a bank loan, independent of their income, or the amount of the loan. All people will need to do is ask their bank…”

The paper continues: “In principle, the mechanism is only available for people’s own, permanent homes, but there is the possibility that this will be extended so that all mortgages will be included”.

The government’s position comes after the ECB announced that it was raising the three key interest rates by 25 basis points, as it did at the previous meeting, putting the deposit rate at the highest level ever in the eurozone.

In the statement released after the monetary policy meeting of the Governing Council, the ECB said that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 4.50%, 4.75% and 4.00% respectively, with effect from 20 September 2023.

This latest hike means the ECB has increased interest rates by 450 basis points since July last year – the fastest rate hike cycle in the history of the eurozone.

The inflation rate has been falling in recent months, but it is still above the ECB’s 2% target for price stability.

To achieve this, the ECB has tightened monetary policy with successive interest rate rises, now at a slower pace, which has led to lower consumption, writes Lusa.

Against this backdrop, the eurozone finance ministers will today be discussing the macroeconomic context in the single currency area and will have to insist on commitments to budgetary prudence.

Source: LUSA/ Expresso