France’s Le Maire Decides to Keep Regulated Savings Rate at 3%
(Bloomberg) -- French Finance Minister Bruno Le Maire decided against raising the interest rate on hugely popular regulated savings accounts since the pace of inflation is slowing and pledged instead to guarantee it won’t fall for 18 months as he tries to balance the interests of households with investment costs.
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Following recommendations by Bank of France Governor Francois Villeroy de Galhau, the payout on deposits in so-called Livret A accounts, which are used to finance social housing and urban development, will remain at 3%, Le Maire said on TF1 television Thursday.
He cited “national economic interest reasons,” as a higher rate would have increased the cost of loans for individuals, small and mid-sized companies and the social housing sector. The decision impacts more than €540 billion ($603 billion) of savings and will apply from Aug. 1.
“The number of social housing apartments drops by tens of thousands when we increase the cost of the Livret A,” he said.
The rate is lower than the 4.1% the Bank of France would have recommended if it strictly applied a formula reflecting the average of short-term interest rates and consumer prices over the previous six months.
The Livret A is a sensitive political issue in France at a time when households have faced the steepest inflation in four decades. At the same time, setting the level too high could be detrimental for France’s economic activity and growth, as other European countries do not have similar regulated savings plans, the central bank said in a statement Thursday.
The rapid interest-rate increase of those accounts has impacted banks, which saw their cost of funding increase faster that the rates at which they could provide loans because of local mortgage lending rules. BNP Paribas SA only expects to reap the full benefits from higher rates in 2024 or 2025, the head of its French retail banking unit, Marguerite Berard, said in an interview with Bloomberg TV last week.
The move is also threatening some insurers, whose customers are yanking their savings from accounts offering lower yields. In the first five months of this year, savers added more than €32 billion to the Livret A and LDD accounts, bringing total deposits to €542 billion.
In a move to promote the Livret d’Epargne Populaire (LEP), which is aimed at households with more modest incomes, the government also kept the rate on those accounts at 6% for the next six months. While this represents a decrease from 6.1%, it is still higher than the 5.6% level the central bank would have recommended using the official formula.
The government also announced the increase of the maximum amount that savers can place on LEP accounts from €7,700 to €10,000.
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