Bank of Estonia: 6-month Euribor may start to fall in spring
As price rises have slowed in the euro area, the European Central Bank (ECB) may lower interest rates in June. However, the six-month Euribor may fall before that, the governor of the Bank of Estonia (Eesti Pank) said on Tuesday.
In December, the Bank of Estonia forecast a 0.4 percent recession this year, now this indicator is a little worse. But the central bank says it still believes the two-year recession will end this year.
"On the one hand, a number of things have already happened to create a more favorable environment for this, starting with the fall in energy prices, for example, from which both Estonian companies and people suffered due to high prices. Also, commodity prices in general have fallen /.../ and there are already positive signs from Estonian export markets," Bank of Estonia Governor Madis Müller said.
He said the bank expects a recession of 0.6 percent, but "a relatively stronger performance in the next two years".
The growth of the economy is helped by the slowing of rising prices, which was 9 percent last year.
"This year as a whole, prices will rise by just over 3 percent, and just under half of this will come from increases in VAT and other taxes – excise duties as well," said Rasmus Kattai, head of the Bank of Estonia's forecasting team.
Purchasing power has been rising for 18 months.
"We are almost back to the level where the decline started in 2021. And also this year, wage growth will clearly outstrip price increases and people's purchasing power will improve by nearly 4 percent this year," he said.
Economic growth and people's income will rise with next year's income tax reform, leaving many people with more wages than before.
As price growth in the euro area has already slowed down to close to 2 percent, the ECB may start lowering interest rates in June.
"However, the six-month Euribor, which is usually the indicator that influences the monthly repayment in loan agreements in Estonia, may of course also start to fall before then, as it usually already predicts what the likely change in the central bank's interest rate could be within six months," said Müller.
In the case of the three-month Euribor, the Bank of Estonia estimates it could be 2.8 percent by the end of the year.
--
Follow ERR News on Facebook and Twitter and never miss an update!
Editor: Merili Nael, Helen Wright
Source: Aktuaalne kaamera
