Six-month Euribor rate may dip below 3 percent by year-end
The six-month Euro Interbank Offered Rate (Euribor) has dropped to nearly 3 percent and may continue to fall.
The Euribor stood at 4 percent a year ago.
Analysts attribute the fall to lower inflation within the eurozone and challenges facing the manufacturing sector, and forecast it could fall further, to 2.8 percent by the end of the year.
After peaking at 4.143 percent in October 2023, the Euribor has fallen more rapidly than expected.
Analysts had previously predicted a 2024 year-end rate of 3.2-3.25 percent, but as of last week, it stood at 3.046 percent.
"Aktuaalne kaamera" spoke to representatives of two major private client banks in Estonia, Swedbank and LHV Pank.
LHV spokesperson Triinu Tapver said difficulties in the manufacturing sector, particularly in Germany's auto industry, have impacted interest rate expectations.
She told ERR: "These factors have disrupted the Euribor expectations seen in the summer, and have cut the actual value of Euribor. If we look to the end of this year, financial markets expect the six-month Euribor to be at 2.8 percent, and by the end of next year, at 2 percent."
"In summary, it is hard right now to predict inflation and so also the steps the European Central Bank (ECB) might take, since at any moment the geopolitical situation could lead to a reshuffle of the deck of cards," Tapver continued.
The ECB is forecast to cut rates in both October and December, but geopolitical factors, particularly in the Middle East, may complicate inflation forecasts and monetary policy decisions.
Chief economist at Swedbank Tõnu Mertsina said the declining Euribor has already reduced mortgage payments for many households, improving purchasing power.
"The six-month Euribor has come down more than a percentage point from its peak (4.1 percent) reached last October, to 3.1 percent. Futures indicate a further drop of 0.4 percentage points by the end of this year," Mertsina said.
Borrowing demand, particularly for housing loans, has increased by 8 percent in the first eight months of this year.
On this Mertsina told ERR: "Nearly a quarter of Estonian households have home loans. The impact of a fall in interest rates can also be seen in the improving demand for mortgages. For instance, in the first eight months of this year, the turnover of housing loans in Estonia has risen by nearly eight percent on year, while loans to non-financial companies are up by nearly four percent."
Euribor rates are seen as the signal reference rates in the European money market and give the basis for the price and interest rates of financial products such interest rate swaps, interest rate futures, saving accounts and mortgages. The six-month Euribor rate is updated on a daily basis.
--
Follow ERR News on Facebook and Twitter and never miss an update!
Editor: Barbara Oja, Andrew Whyte