prime minister Andrej Plenkovic On Thursday he presented a new, fifth package of measures to protect households and the economy from price increases. The package limits the prices of electricity and gas as well as the prices of 30 items in stores. However, the Prime Minister also announced an increase in interest rates on citizens’ savings.
“Banks will increase interest rates on citizens’ savings, and this is a measure that will benefit citizens and at the same time curb inflation,” Plenković said, adding:
“We have received assurances from bank managers that the increase in savings rates will not lead to an increase in lending rates.”
An economic analyst commented on this government decision for Net.hr Velimir Sonje Who did we ask if it is true that, as the Prime Minister announced, lending rates will not rise due to the increase in savings rates, i.e.
“It all depends on whether there is demand for loans at higher interest rates. For this reason, it is difficult to predict the timeline for the change. If the demand for loans cools down, there will be no significant increase in interest rates,” Šonje said.
The government’s true intention
The Prime Minister, who held a meeting with representatives of banks on Wednesday, said that banks recognize the government’s efforts to maintain the standard of citizens and fight inflation.
“After the government successfully issued government bonds at the beginning of the year, it is obvious that banks are competitive to increase interest on savings,” he said at the government meeting on Thursday, announcing this measure.
However, if the banks recognized national bonds as competition, why did the Prime Minister have to “encourage” them to deal with this “threat” at yesterday’s meeting? In other words: Why should banks even agree to increase interest rates on savings deposits?
“The result will depend on the market situation,” says Šonje. “Banks will raise deposit rates more if deposit growth stops, and this may be a more important factor than some sort of ‘political will,'” he adds.
Šonje explains that raising interest rates can only counter inflation if it increases total savings and decreases total spending.
“But I think the government’s intention is different – to compensate people who save with higher interest rates for the decline in the real value of savings that has occurred due to inflation,” he says.
“If the price rise continues, the problem will be much more serious…”
Commenting on the price freezes for a total of 30 items, Šonje recalls that inflation showed a tendency to calm down for several months and then “awakened” again in August.
“This is largely due to the increase in energy prices on the world market, which has spilled over into the domestic market. The government could have neutralized this by reducing consumption taxes, but it did not, as it would have withdrawn part of the revenue from the budget. Excise taxes can have a more direct impact on prices, VAT is not a suitable instrument for this,” says Šonje when asked whether the measure to reduce VAT on products could have had a better effect than the price cap.
We asked the expert whether these government measures contradict the policies of the European Central Bank (ECB), which is trying to curb inflation by raising interest rates? However, Šonje says that he has not seen any concrete measures from the Croatian government.
“It’s more about political pressure on traders and bankers. I see no conflict with what the ECB is doing. Unless there is a further increase in world prices for energy and raw materials, inflation will continue to slow with and without such assurances, so we will quickly forget the current issue. If the current growth trend continues, the problem will become more serious and sooner or later the government will have to resort to more direct measures, such as the aforementioned reduction in excise taxes, a measure it already took during the biggest crisis last year. “ concluded Šonje.
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