The annual Euribor reference rate rose above zero for the first time in six years on Tuesday.
Mortgage debtors it is worth preparing for 1-1.5 percent interest rates on mortgages, bank economists estimate.
The most popular mortgage rate, the twelve Euribor reference rate, rose to more than zero for the first time in six years on Tuesday as the European Central Bank (ECB) is expected to tighten its monetary policy this year to curb inflation.
The Euribor of the year was quoted at 0.005 per cent on Tuesday, compared to -0.03 per cent on Monday. Money markets are pricing that the year’s Euribor would rise to just over one percent next year.
“Thus, there would be a fair percentage increase over the mortgage margin. You should be prepared for that. It may not come true, but it is currently a market expectation, ”says Danske Bank’s chief economist Pasi Kuoppamäki.
Read more: Finland’s most popular reference rate for mortgages exceeded the zero limit, and experts say it’s a good thing – the counter tells you how a rise in interest rates will affect you
Also OP’s chief economist Reijo Heiskanen says that mortgage lenders should be prepared for at least the market to expect interest rates of around 1.5 percent within a year.
OP expects that the so-called natural level of twelve-month Euribor will fluctuate on average by about 2–2.5 per cent in a normal economic situation.
“It is good to prepare for the average interest rate level. The estimate of the natural average level is for a longer period of time, ”says Heiskanen.
Daily The common Euribor reference rates for the euro area to be published were introduced in early 1999.
The Euribor rate for one year peaked at 5.53% in the midst of the financial crisis in October 2008. Since then, the rate has started to fall sharply as the ECB began to cut its key interest rate rapidly.
Danske Bank’s Kuoppamäki says that a rise in Euribor to 5% would put the eurozone economy at risk of overheating.
“Interest rates could rise to such levels if the eurozone economy started to grow at a brisk pace. The labor market should tighten significantly and inflation should be above the ECB’s target. We are currently well above the ECB’s inflation target. ”
The ECB’s inflation target is 2% over the medium term, with consumer prices in the euro area rising by 7.5% year on year in March.
“It’s basically about inflation. Interest rates can rise even in a situation where economic growth is not terribly strong, ”says OP’s Heiskanen.
Read more: Nordea: For the first time in their lives, many mortgage debtors are paying “just the right” interest
Of the year The euribor rate has been negative since February 2016. Market interest rates have been in the red due to the ECB’s attempts to stimulate economic growth in the euro area through low policy rates and securities purchase programs.
According to banking economists, interest rates could return to negative if economic growth in the euro area slows and inflation slows.
“We could return to the starting box as if the prices of raw materials were falling sharply, and the rise in prices would not have time to be passed on more widely to prices and wages,” says OP Heiskanen.
According to Danske Bank’s Kuoppamäki, the ECB would have the need and opportunity to support economic development with monetary policy if economic developments in the euro area returned to weak and inflation fell to normal levels.
Kuoppamäki says that the economic situation is now the most difficult for the ECB when inflation is high and at the same time the outlook for economic growth is weak.
“The ECB is forced to tighten its monetary policy in order to keep inflation down and maintain its credibility.”
#Interest #Interest #rates #rising #experts
