The 12-month Euribor fell for the fourth consecutive day and lowered the annual rate by 3% for the first time since December 2022. The benchmark index for variable-rate mortgages collapsed as expectations grew for central bank interest rate cuts. This Thursday, the ECB meets. It will cut rates, but its forecasts will be more decisive. The Fed meets next week and is under pressure to initiate a sharp rate cut.
Euribor begins September as it ended August: downhill and without brakes. From the six sessionsSo far this month, the index has down five. And today, for the first time, it breaks, in its daily data, the psychological barrier of 3%. Concretely, the panel of interbank loans at twelve months ends at 2.986%. It is too early to know if the declines of September will be of the same magnitude as those of the previous month, but if they continue, they will mean the sixth monthly decline of the reference and a strong discount for mortgage loans, with an annual and semi-annual rate. -annual revision.
Banks are recalculating mortgages with the monthly average. For now, that of September amounts to 3.056%. If it reaches these levels, for an average mortgage of 140,000 euros over 30 years and with a differential of 1%, with an annual review, the monthly fee would be 91 euros cheaper. In the case of a half-yearly review, the the reduction would be 53 euros.
What’s happening? Euribor buys expectations of sharp interest rate cuts from the Fed and ECB, in addition to record high volatility due to tensions in financial markets. For the ECB, three rate cuts are envisaged, which will take the reference rate, the deposit rate, from 3.75% currently to 3% in December. In the United States, market forecasts are even more aggressive for the Federal Reserve, going so far as to anticipate five reductions at the three meetings remaining in the year.
Euribor generally goes hand in hand with ECB rates, but it is also exposed to the rest of the market. And if global stock markets go into recession, as happened last week or early August, banks lend each other money at lower cost in anticipation of lower interest rates. This scenario favours a fall in the Euribor, but it remains to be seen whether it is confirmed.
False start Euribor
At the beginning of the year, something similar happened: financial markets began demanding similar sharp rate cuts. Euribor futures contractsan indicator widely followed by analysts to prepare their forecasts, They even predicted that the Euribor would fall to 2.5% by December this year.The omens did not come true and during the first part of the year, the declines in the index slowed down.
Currently, Euribor futures are predicting that the mortgage benchmark will be at 3% at the end of the year, so there will not be much room for the index to fall. But everything will depend on the outlook of central banks and markets for 2025.
For Euribor, the next two weeks will be crucial. First, with the ECB meeting on September 12 and, second, with the Federal Reserve meeting on September 18. Both central banks will make cuts. In Europe, they will be a continuation of those started in June. And in the United States, they will be the starting signal for their people after four and a half years.. The ECB and the Fed will not only change their rates, which should put additional downward pressure on the Euribor, but they will also show their cards with their economic forecasts. A poor outlook would accelerate the decline in the Euribor, while a reserved tone from central banks should dampen expectations of cuts, and with them the cuts in the Euribor.
