SEB forecast: Interest rate hikes very likely over

Euro sign.
Euro sign. Source: Huko Aaspõllu

The European Central Bank (ECB) will not be hiking interest rates any further, and a drop in interest rates can be expected in the second half of next year, SEB chief economist Mihkel Nestor said presenting the bank's latest economic forecast.

The interest rate hikes that had recently alarmed home loan borrowers are very likely through, Nestor said.

"If you look at what the ECB has planned, we're predicting that the ECB won't raise interest rates any more, and that starting from the second half of next year, we could expect interest rates to start to be lowered instead," he explained.

As a result, according to the forecast, things will reach the point by the end of next year where the central bank's key deposit rate will stand at 3 percent, which is a very good approximation for the Euribor rate as well. By the end of 2025, the interest rate will reach 2.5 percent, i.e. significantly lower than the current level of 3.75 percent.

Swedbank issued its own economic forecast last week as well, and they believe one more interest rate hike still lies ahead.

"We believe the ECB will hike the deposit facility interest rate by another 0.25 percentage points to 4.0 percent," Swedbank chief economist Tõnu Mertsina said. "However, interest rates will not remain high for very long. Due to slowed inflation and a weak economy, the first cut should come next spring."

Swedbank finds that households have coped well with rising interest rates thus far. Although they are a major additional cost to the economy as a whole, their negative impact on economic growth is smaller than that of too rapid inflation.


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Editor: Aili Vahtla

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