(Bloomberg) — Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.
The French government will raise the interest rate on hugely popular regulated savings accounts in February to 1% from 0.5%, following the central bank’s recommendation after a surge in inflation in the euro-area’s second-largest economy.
To calculate its recommendation, the Bank of France uses a formula that reflects the average of short-term rates and consumer prices in the previous six months. In a statement Friday, it said a mechanical application of those rules would lead to an increase of the Livret A and LDD accounts to only 0.8%. But it proposed an increase to 1% as the central bank’s forecasts show another hike to at least that level would be necessary in the next review in August.
“This level would better assure the income of Livret A holders, without creating too great an additional cost,” the Bank of France said.
Finance Minister Bruno Le Maire said on TF1’s lunchtime news program that the government will “strictly follow” the central bank’s recommendation.
An increase was already on the cards as inflation in France stabilized at 3.4% in November and December, the highest rate since 2008.
The decision is a difficult economic and political balancing act as the government and finance ministry have some leeway to deviate from a formula-based approach. On one hand, the Livret A savings are used to finance social housing and urban development, so higher rates drives up the rates of such projects. But lower rates are unpopular with households, who use the accounts on a massive scale.
“The Livret A rewards the savings of French people, but it also finances social housing which everyone is committed to,” Le Maire said.
The French had almost 470 billion euros ($539 billion) stashed in the Livret A and LDD accounts at the end of November — an increase of more than 20 billion euros since the start of 2020. When the government cut the rate to 0.5% from 0.75% in February 2020, the National Rally leader Marine Le Pen decried the move as a “bad blow” for middle and working-class households.
(Adds comments from French Finance Minister)
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
