2023-12-15 16:33:16
He 12-month Euribor go down today to 3,644% in its daily price, 7.5 basis points less than on Thursday while the meeting of the European Central Bank (ECB) was being held to decide the official rate level. It is a new minimum since April 11 of this year for the mortgage reference indicator. After this fall, the Euribor pushes the December average at 3.753% already crossed the monthly equator.
Once again, the thermometer of interest on loans between banks – which is what the Euribor measures – continues to fall, while markets discount large and early cuts in euro zone interest rates in 2024. However, the central bank is pointing in the opposite direction, widening the divergence and laying the groundwork for future turbulence in financing conditions.
The president of the ECB, Christine Lagardewas blunt in his speech before the press and analysts after announcing that they remained rates at 4.5%: “We did not discuss rate cuts at all. There is no discussion, There is no debate on this topic. And I think everyone in the room shares the idea that between raising and cutting, there is a whole plateau, a whole waiting beach. It is like solid, liquid and gas: you do not go from solid to gas without going through the liquid phase. “This was simply not discussed.”
First reductions in mortgage payments
If the trend continues over the next two weeks, the 12-month Euribor will record the biggest drop in a month since February 2009, as ‘La Información’ reported last Friday. At this moment, the decrease compared to last November now amounts to -0.26 points (26 basis points). Since October’s yearly high, the average has fallen -0.4 percentage points (40 basis points) in its biggest bearish process for fourteen years, in the midst of a financial hangover after the bankruptcy of Lehman Brothers, which caused an earthquake in the mortgage sector.
With this new scenario, Mortgages in Spain will still continue to increase in their installments in a majority way this month but they are about to register the first reduction in prices in more than two years. In fact, as this newspaper published on Saturday, some mixed type housing loans that are in the showcase of entities such as Openbank (Banco Santander) e ING They will become cheaper because they contain semi-annual reviews in the 12-month Euribor contract. For the rest, March 2024 is the key month in which these discounts could begin because the average for that month in 2023 was 3.647%.
Will the ECB lower rates?
The influence of the ECB’s rate decisions on the Euribor is not automatically transferred, but it does have a close relationship. The interbank market tends to anticipate the future steps of the central bank. He did it before and during the interest rate hike cycle that began in 2022, but he is also doing it now that imminent reductions are expected despite Lagarde lowering them. The debate now among experts is when these cuts will occur, whether at the start of 2024 or whether they will be postponed until the end of the year.
The key, again, will be in the macro indicators that are emerging in the euro zone. “Although The data is not necessarily alarming, it does point to a change in the balance of risks which central banks now face as they move through this cycle. With inflation close to target in the Eurozone and continuing to approach target in the US, the need to remain so restrictive diminishes and, in fact, policy becomes more restrictive the more inflation falls if rates remain stable,” reflect George Curtismanager of TwentyFour AM-Vontobel.
“Therefore, it is not surprising that the market is looking towards the end of the hiking cycle and towards the next important question: when will central banks start cutting? For context, short-term futures forecast cuts of approximately 125 basis points in both the US and the euro zone next year, and the probability of a first cut continues to advance. The market is pricing the probability of a Fed cut for March at 72%, and the probability in the Eurozone at 88%. “While we don’t necessarily expect such a quick cut, we wouldn’t rule it out.”Curtis adds.
“In our opinion, ECB will finally declare victory over inflation in March 2024along with new macroeconomic projections, and we expect the ECB to begin lowering rates in June 2024, cutting 25 basis points per meeting for a total of 125 bp,” Nomura analysts point out.
However, the Japanese firm recalls that the ECB “surprised” by announcing at this meeting that will gradually reduce PEPP reinvestments (pandemic purchasing program) in the middle of the year, while the markets were only waiting for a mention that the debate had begun.
This issue is becoming more and more important. The loss of presence of the ECB in the debt markets and the possible sale of part of its portfolio of sovereign and bank bonds can end up stressing financing conditions and impact on indices such as, for example, the Euribor.
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