Portuguese residents paying higher interest rates

THE WORLD financial crisis and the credit crunch is pushing up the cost of borrowing for individuals as well as business in Portugal, the Governor of the Bank of Portugal warned last week.

According to the Bank of Portugal’s quarterly bulletin Boletim Económico da Primavera, the ‘worrying situation’ with regards to expected interest rate hikes had yet to be totally felt in pre-contracted mortgages and borrowing spreads.

With interest rates for borrowing between banks already at 4.7 per cent it was only a matter of time before these additional costs would be passed on to the bank’s ordinary customers.

At the same time, both the Governor of the Bank of Portugal, Vítor Constâncio, and the Finance Minister, Fernando Teixeira dos Santos, warned that the government’s budget crisis was far from over.

The Bank of Portugal (BdP) warned on April 16 that the government would have to take additional budgetary constraint measures if it was to fulfil objectives promised to Brussels of bringing its budget deficit to 0.5 per cent of the GDP by 2010.

Economic growth

“It will take the careful monitoring of public finances throughout the year and the eventual adoption of measures to guarantee convergence within the national debt to 0.5 per cent by 2010,” Vítor Constâncio said.

The government predicts a growth rate of 2.2 per cent this year, although the Bank of Portugal has predicted only 2.0 per cent which could be reviewed downwards to 1.9 per cent if the financial crisis continues throughout the year.

In 2007, the Prime Minister José Socrates had announced that the budget deficit crisis had been “overcome” when the public deficit had fallen to 2.6 per cent.

The revelations were published on the same day that two members of the European Central Bank confirmed the eventual need to raise interest rates from four per cent which ‘was not sufficient to control inflation’.

“The current financial/economic policies being pursued by the ECB will help to attain our objectives but we are not totally confident they will be sufficient,” said ECB spokesman Juergen Stark to Bloomberg.

Continued increases in Interbank interest rates, Euribor, revealed that the financial crisis was ‘still a long way off from being resolved’.

Last week Euribor reached an annual high of almost 4.8 per cent.

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