the return from l’inflation also affects rates loan from France. They have been climbing since December 2021. We explain the consequences to you.
What is the evolution of France’s borrowing rates?
They have been soaring since December, after three years around zero or even negative. However, the State has a debt (2,145 billion euros) and it continues to spend more than its resources. To repay maturing loans and finance its deficit, it therefore intends to borrow 260 billion in 2022, like last year. But with higher rates.
How does the state borrow?
It issues short-term or long-term debt securities (two to fifty years). They are acquired by fifteen banks. And the latter resell them to investors: pension funds, insurers, etc. Who can then sell these securities. Today, they are finding buyers at an average rate of 0.7% (for ten-year loans), compared to -0.1% in July 2021.
Why this increase?
Due to the return of inflation,
answers François Écalle, public finance specialist. The remuneration of the title must be higher to compensate for the loss of purchasing power.
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Average ten-year borrowing rate in France between October 2018 and February 2022. © Ouest-France
At the beginning of February 2022, the State issued 3.3 billion in debt at 0.3% over eight years. A year earlier, it issued the same loan at a negative rate: – 0.25%. But as the market is currently trading ten-year securities at 0.7%, the State will have no choice but to align itself at its next auctions.
What consequences?
The state risks paying more interest (38 billion last year). But we will see the effect probably in two years,
nuance the host of the site Fipeco. The interest charge is like an ocean liner. It evolves very slowly, as old loans are replaced by new ones.
As interest rates fell, the average cost of debt stock had been slowly falling for the past twenty years. But last year, it increased a little (1.35% against 1.28% in 2020). This trend could accelerate. We must avoid the snowball effect: the progression of the interest charge, which increases the deficit, therefore the volume of loans and so on.
What to do ?
Curb inflation. To do this, central banks can raise their short-term interest rates, which restricts credit to companies.
But reducing credit is to curb growth. Something to worry the markets about. On Friday February 11, 2022, the Paris Stock Exchange lost 1.2%.
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