The European Central Bank (ECB) has announced that it will raise interest rates next month in a bid to curb inflation. why Many citizens fear higher interest rates and higher credit rates. The Banking Agency of the Federation of Bosnia and Herzegovina (FBiH) states that changing the interest rate and payment schedule is only possible for pre-arranged loan agreements that include the possibility of changing the interest rate.
Before establishing a contractual relationship, the bank is obliged to inform the customer about the details of possible changes.
Also, the lender must provide all the necessary information about changes in interest rate levels during the term of the agreement.
Taking into account the available information and expectations regarding interest rates, the agency says, as well as the fact that the possibility of changing the interest rate at contract conclusion is foreseen, changes in the reference interest rate should not jeopardize the solvency of most customers.
What happens to loans that are concluded with fixed interest rates?
Speaking of citizens’ fear of a possible increase in the loan rate, the FBiH Banking Agency notes that loans previously concluded with a “fixed” interest rate are not exposed to the risk of changes in reference interest rates.
The ability to mitigate the impact of interest rate changes later in the year
”Maintaining the stability and liquidity of our banking system points to an opportunity to mitigate the impact of interest rate changes later in the year. Based on current knowledge, the growth in the level of reference interest rates in the European Union (EU) and in the euro area should be kept at an acceptable level that does not endanger the growth of the Union economies or lead to a recession,” Saying from the agency, they add that reliable ranges or forecasts of the impact of ECB actions are not available.
When asked what will happen to existing loans, those with a currency clause in euros and the local currency, the agency says that in the “currency board” conditions, interest rates are not linked to the currency of the loan, if it is the euro and BAM.
”It is still believed that the ECB has limited room to implement measures and raise interest rates to levels that do not plunge the EU’s leading economies into recession or interest rate fragmentation across the EU and euro area -members leads. In addition to the focus on inflation-related risks at this time, a halt to expansionary monetary policy and the promotion of low reference interest rates have been announced in the run-up to the pandemic,” the agency added.