According to Eesti Pank, the European Central Bank will not lower interest rates in the first half of next year because the inflation target has not yet been reached. However, financial markets expect rates to start falling as early as the second quarter.
According to Eesti Pank, the European Central Bank Council’s decision on Thursday to leave base interest rates unchanged, which rose to their highest level ever in the autumn, was expected.
“Inflation has come down quite well in recent months, but it still remains above our 2% target and, more importantly, if we look at inflation without food and energy prices, it is still well above above the 3% level. And we also know that internally there are many temporary factors that have temporarily lowered inflation. In the coming months we will probably see that inflation in the euro area will increase a little”, explained Ülo Kaasik, vice president of Eesti Pank.
According to Eurozone experts, inflation will gradually slow down next year. But it will only get closer to the 2% target by 2025. According to Kaasik, subsequent decisions by the European Central Bank will therefore not lower the interest rate.
“If inflation were to suddenly drop rapidly, then we could discuss these interest rate cuts, but for now I don’t see that possibility in the next few quarters,” Kaasik said.
However, financial markets expect the base interest rate to start falling faster than the European Central Bank predicted.
“I myself would believe this because faster, probably starting from the second quarter, because the US Federal Reserve will start cutting from March. /…/ Markets expect the base interest rate to fall to 3% by the end next year (Christine, President of the European Central Bank) Lagarde yesterday wanted to give the impression that she is not willing to cut soon. I am in the middle. I believe that perhaps the basic interest will reach 3.5% and the euribor it could be slightly below 3.5%,” commented Mehis Raud, partner at Trigon Varahaldus.
The interest on the Euribor interbank loan also depends on the decisions of the European Central Bank. While in October the six-month Euribor had risen to 4.1%, it has now fallen to 3.94%.
“Estonian loans are tied to the six-month Euribor, i.e. this interest rate changes twice a year. Clients tend not to see the immediate effect and for our clients the main changes in interest rates occur in spring and autumn. In the spring the six-month Euribor fell a little, but in the autumn, I think, customers will notice a noticeable decrease in loan payments,” said Catlin Vatsel, head of the private lending department at LHV.
Bank loans have already become more convenient for both private and business customers, explains Raud.
“The margins on loans of large companies have already decreased, similarly the real estate margins of private clients have also decreased. And now, of course, yes, if the Euribor starts to fall, this will further ease, let’s say, the burden of loans,” Raud said.
2023-12-15 16:55:00
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