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Analysts expect moderate decline in Euribor next year

New development.
New development. Source: Siim Lõvi /ERR

The six-month Euribor, which sets house loan interest rates in Estonia, has fallen below 4 percent in recent days, and some analysts estimate it to fall by one percentage point by next year. However, loan rates are reflecting the drop slowly.

Initially, not many will be able to benefit from the lower Euribor on their loan interest payments, but this will gradually change over the coming months.

"It does not yet have that impact. Just the people who sign a loan deal today will benefit from the lower Euribor. In loan agreements, the Euribor is frequently changed every six months. It is a little higher for people who signed fixed agreements when it was higher, but it is anticipated that the next change would bring it to them as well," Anne Pärgma, the head of housing loans at Swedbank, said.

In the near future, the Euribor is anticipated to fall even more. "Current forecasts indicate that the Euribor will fall. It's already below four and will probably be around 3.5 or slightly higher by spring next year, but sure, the Euribor is falling," Pärgma said.

Peeter Koppel, the head of investments at Redgate Wealth, said that expectations for a drop in interest rates and thus the Euribor have strengthened.

"This shift has been really quick and if we look at what the Euribor, or the central bank's policy rate, is likely to be in October, we are already talking about 2.5-2.8 percent. It was three not long ago, and even more recently, there was little talk of any decline," Koppel said.

Koppel said he is eager to see what signal the European Central Bank's chief, Christine Lagarde, will deliver in her address next week.

"Inflation has fallen rapidly, and if we look at the status of the European economy, both firms and consumers are pessimistic. The economy's temperature is rapidly lowering, which is where all of the conjecture about interest rate cuts has come from," Koppel said.

"From the central bank's perspective, I believe they are hesitant to begin the cycle of lowering interest rates this time, exactly because the speed of inflation was so high that they do not want to risk it rising again," Peter Priisalm, the head of investments at asset management firm Avaron, said.

Priisalm said that the European Central Bank wants to wait for January inflation figures before making a decision.

In November, eurozone inflation was 2.4 percent.


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Editor: Barbara Oja, Kristina Kersa

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