Euribor interest rates have recovered quickly from the dip caused by the banking turbulence in March.
Euribor– interest rates have recovered so quickly from the decline in March that the three-month Euribor is no longer as attractive an option for mortgage borrowers as a reference interest rate for a loan than it was a few months ago, the OP group believes.
Euribors, which are generally used as reference interest rates for mortgages, dipped momentarily in March due to banking turbulence. Since then, interest rates have risen because the interest rate market has calmed down and the European Central Bank’s interest rate hike expectations have strengthened.
Especially the shortest euribor rates have recovered quickly. For example, the three-month euribor has risen to 3.29 percent, i.e. well above the levels at the beginning of March and the highest since 2008.
“The short three-month Euribor interest rate is no longer as attractive an option for mortgage borrowers as it was a few months ago. The difference between the 12-month Euribor and the 3-month Euribor has shrunk to less than 0.6 percentage points, and in our view, the difference will narrow even further as the ECB’s rate hike cycle progresses,” writes OP Group’s senior market economist Jari Hännikäinen in his comment.
The most popular reference interest rate for mortgages, i.e. the 12-month Euribor rate, has already risen by more than 0.5 percentage points to 3.8% from the March base quote, but it has not yet returned to the levels of the beginning of March. The twelve-month euribor was quoted at 3.865% on Monday.
OP group predicts that there is still room for growth in Euribor rates. The banking group advises that mortgage debtors should be prepared for rising interest costs in the future.
“The room for interest rate increases is largely determined by the ECB’s future actions, and based on the central bankers’ recent comments, the central bank’s rate hike cycle is continuing until the summer,” Hännikäinen writes.
For example, the Governor of the Central Bank of Belgium, a member of the ECB Council Pierre Wunsch told the British newspaper Financial Times on Monday that the central bank cannot stop raising key interest rates until there is a slowdown in wage growth.
In March, the ECB decided to raise its deposit rate by 0.50 percentage points to 3.00 percent. The next meeting of the central bank is on Thursday next week.
The OP group expects the 12-month euribor to rise slightly above four percent during the summer and early autumn.
According to Hännikäinen, the longer-term outlook for interest rates is now associated with significant uncertainty. However, based on the current outlook, interest rates are set to be higher than in recent years.
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