Rapid interest rate hikes have doubled the interest expenses of Estonian companies and households. Households' interest costs have grown to €800 million over the last year, while companies pay €1.2 billion in interest alone.
The European Central Bank has hiked the rates to try and combat inflation.
Madis Müller, governor of the Bank of Estonia, said that the interest hikes have been very sudden for both companies and households.
If the average unsecured home loan had an interest rate of 2.7 percent two years ago, this had grown to 5.58 percent by August of this year.
Long-term business loans had an average interest rate of 6.34 percent in August, up from 3.4 percent a year ago.
Müller said that Estonia, Latvia, Lithuania and Finland where loan contracts sport a variable Euribor rate differ from other countries in that interest hikes also hit people who borrowed in the past, when the rates were lower.
While the six months Euribor of many Estonian loans was below zero as recently as until last summer, this figure had grown to 4.122 percent by Monday.
The Bank of Estonia's recent economic forecast reveals that the interest expenses of households have nearly doubled to €800 million, while companies pay more than double at €1.2 billion.
The interest expenses of business loans will amount to 15 percent of total profit next year.
"While considerable, the business sector should be able to swallow the hikes," the Bank of Estonia governor suggested.
The central bank calculates households' interest expenses as a ratio of consumption where it came to around 2 percent.
Müller said that compared to the problems created and damage done by rapid price advance, interest expenses are rather a smaller price to pay.
But it is a problem that those expenses are distributed very unevenly.
"For example, regarding home loans, interest expenses have probably grown catastrophically for those who borrowed as much as they could get a few years ago. A person who borrowed €100,000 then is now paying €700 a month instead of €500, which is a much more tangible effect than 2 percent in total consumption," Müller said.
He said, however, that most people are still capable of servicing their loans, and the share of loans that are more than 60 days overdue remains low.
Every 550th borrower is having trouble repaying their loans.
Editor: Barbara Oja, Marcus Turovski