Central bank rates, market rates and retail bank rates in the euro area in the context of the recent crisis

The article addresses recent trends in the financing costs of various public and private sectors in the euro area and Belgium. It pays particular attention to the monetary policy transmission process via the interest rate channel during the crisis and notably examines the extent to which the process was affected by tensions on sovereign debt markets. Overall, it appears that the interest rate cuts orchestrated by the ECB and the adoption of numerous non-standard monetary policy measures made it possible to maintain an effective transmission of monetary policy in the euro area during the crisis. Public debt market tension has had some impact on market borrowing costs for non-financial corporations, but this impact was relatively limited at the aggregate level. Because of its direct involvement in public sector financing, the financial sector was significantly affected, and while a portion of the impact was passed on in the rates offered to households and the non-financial private sector, it appears that banks’ transmission of monetary policy was not profoundly affected in the euro area overall. Similar conclusions apply to Belgium, where it does however appear that mortgage loan rates were somewhat influenced by the rise in sovereign debt yields. In the countries bearing the brunt of the crisis, companies and individuals nevertheless saw their borrowing costs rise more significantly. In general, it appears that at the national level, private sector financing costs were amply influenced by those of the public sector, although some decoupling was observed, basically at the level of the non-financial sector. These results are reassuring in that they demonstrate the relative effectiveness of the monetary policy measures adopted during the crisis and the relatively limited repercussions of the sovereign debt crisis on the rest of the euro area economy. Still, in the countries most affected by the crisis, the private sector has been hit hard by higher public sector financing costs and fiscal consolidation measures in those countries should therefore remain a top priority.