Interbank interest rates “Euribor” 1-12 months. the curves have already gone down, falling by 4%. the limits to which they have been frozen recently.
The long-term (12-month) indicator fell more sharply, falling to 3.727 percent during the week. At this time, popular among Lithuanian residents for 6 months. The Euribor stands at 3.948 percent.
Economist Alexander Izgorodin believes that the current figures reflect market expectations for key interest rates, but that these expectations may be too bold.
“Due to the fall of the Euribor, the market is moving against the tide due to the fall in interest rates, estimate 85%. “It is likely that the European Central Bank will lower its interest rates in March next year,” said Citadele Bank economist A. Izgorodin, adding that time will show how reasonable these expectations are.
The markets are talking about spring
As “Bloomberg” announced on Wednesday, there are already discussions above 4 percent. interest rates are no longer necessary. Markets estimate that there is almost a 90% chance that the ECB will start cutting interest rates as early as the first quarter of next year.
According to A. Izgorodin, December-January inflation data in the eurozone will show whether these market expectations are justified. On the other hand, we can predict that the Euribor will start to fall sustainably from the end of winter and the beginning of spring, and that the ECB will lower interest rates even later.
“That’s probably the story of next spring, early in the second half, when the European Central Bank starts to cut interest rates further and it will be really clear whether the slowdown in inflation is sustainable.” Now I would say that the market is a little optimistic on this aspect and underestimates all the risks,” comments the expert.
SEB bank economist Tadas Poviauskas also believes that Euribor reflects expectations that are too high for the moment.
“12 months real The Euribor is at 3.73%, which indicates that increasingly aggressive tapering is on the agenda. In the SEB group, we still maintain the (forecast) that the first reduction will not take place until June next year.
The market, if we look at the futures contracts, is already expecting it in March. Perhaps the market is ahead of events. April or June would make more sense. March is too early,” said the SEB economist.
Different voices at the Central Bank
Isabel Schnabel, a member of the European Central Bank’s governing council, said in an interview with Reuters on Tuesday that inflation was showing a “pretty impressive” slowdown.
“The latest inflation indicators make further rate hikes unlikely,” Schnabel said in an interview published on the ECB’s website, warning that it was too early to declare victory on inflation.
The German economist’s comments are a departure from his usually hawkish stance on interest rates.
For his part, the president of the German central bank, Joachim Nagel, who spoke last week, did not rule out the possibility that the ECB would raise interest rates again. According to Reuters, the president of the Bundesbank (another influential member of the ECB’s governing council) said in Cyprus that such measures may be necessary if the inflation outlook deteriorates.
Currently, interest rates are 4 to 4.75 percent. in the meantime.
Economists surveyed by Delphi are skeptical about whether the peak in Euribor and base rates is already a thing of the past.
“I think the peak is behind us,” said T. Poviauskas, economist at SEB.
A. Izgorodin believes that Euribor should decrease next year, but it is too early to say whether it has reached its maximum.
“Euribor is now below 4%, precisely because inflation in the eurozone has slowed, but I would not dare say yet whether it is a peak. If by chance we see an acceleration of inflation in December or January, then the Euribor could rise a little,” estimates the economist.
T. Poviauskas believes that the fall of the Euribor is only beneficial for the population “symbolically”, from the point of view of expectations.
“It is not the level itself that matters, but the dynamics and expectations. Now the question is: is the real Euribor 6-12 months away? correctly calculates the future actions of the ECB, does didn’t run away,” says the economist.
December will not surprise
On December 14, the European Central Bank will hold a meeting in Frankfurt, where it is expected to announce its monetary policy position and macroeconomic assessments.
T. Poviauskas says that this meeting will be important from the point of view of communication and forecasting, but it cannot be assumed that a decision will be made regarding the reduction of interest rates.
“There will be no such miracle… The ECB publishes updated macroeconomic forecasts every quarter and there will likely be many answers in December as to what we will see in the updated inflation forecasts , particularly for 2025.
Because what the ECB puts forward are the medium-term inflation forecasts: not so much for this year or next year, but for 2025-2026. And if we see a figure below 2 percent, that’s a very good sign for those who expect interest rates to fall,” says T. Poviauskas.
The ECB’s medium-term objective is 2 percent. inflation.
Inflation in Lithuania and the Eurozone:
Eurostat, the European Union’s statistics agency, forecasts that annual inflation in the euro zone is expected to reach 2.4 percent in November.
The Dutch bank ING believes that the challenge next week for the European Central Bank will be to keep all options open without appearing too conciliatory (“April, conciliatory), but at the same time – so as not to break with reality.
And the current reality shows that inflation rates are decreasing, but high interest rates are already affecting people’s finances and economic development.
Source: The Delfi