Essential that people make the most of their cash holdings, Fintech CEO says

The European Central Bank (ECB) kept interest rates unchanged last week, breaking a remarkable trend of ten successive rate hikes.

The ECB remained resolute in its stance that the increasing chatter about rate cuts in the market was premature.

Since July 2022, the ECB has aggressively raised interest rates by a total of 4.5 percentage points in an effort to counter surging inflation.

However, in the preceding month, the ECB vowed to hit the brakes, acknowledging the ripple effects of historically high borrowing costs on the broader economy.

The mounting pressures on prices have finally begun to ease, with inflation plummeting by over half in just a year.

At the same time, the economy has decelerated to such an extent that signs of a looming recession have emerged.

These circumstances make the prospects of further rate hikes highly improbable.

Responding to this development, Victor Trokoudes, CEO and founder of fintech Plum, which has offices in Nicosia, Athens and London, commented that the ECB was “facing one of their trickiest decisions yet on interest rates”.

He noted that “while inflation fell to 4.3 per cent in the Euro area according to Eurostat, it is still running over twice its target”, noting that “on the other hand, economic signals suggest growth is slowing in the Eurozone”.

“Against a backdrop of geopolitical volatility, economic uncertainty and access to credit falling more than expected, many will feel this decision is appropriate,” he stated.

“Especially so as the Bank of England has recently paused their cycle of rate rises and markets are expecting the US to also hold rates,” he added.

Continuing, the Plum CEO said that “Lagarde has also followed the Fed in making clear that rates are likely to remain high for some time, and leaving open the option for further rate rises although the bar has been set high for this”.

Nevertheless, he added, “that option may well have to be considered if wage growth continues to increase significantly”.

Lagarde herself has indicated that a steady policy is in the cards, but gave little additional information beyond that. Moreover, she also kept an additional rise in rates on the table as a remote but present possibility.

“We have to be steady,” Lagarde said during a news conference in Athens, where the ECB recently held its policy meeting for the first time in 15 years.

“The fact that we are holding doesn’t mean to say that we will never hike again,” Lagarde said.

Trokoudes explained that aside from weakening economic activity, gas and oil prices are back on the rise. He noted that this could bring more cost of living pressures, hitting the financial resilience of Europeans.

“That’s all the more concerning as the recent inflation reading was driven heavily by energy costs, more specifically petrol prices,” he said.

“That’s why it’s essential that Europeans make the most of their cash holdings. However, the major banks are passing on merely a fraction of the increase in the central bank rate since 2022,” he added.

“An increasingly popular alternative to these traditional savings accounts are money market funds, which provide a return that typically follows central bank rates. Fintechs like Plum are making this option more accessible and it’s critical that people consider all the options available to them,” he concluded.