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Respite for euro borrowers/Euribor drops to 7-month low

2023-12-07 09:02:00, Ekonomi CNA

Euro interest rates in international markets have suffered a significant drop at the beginning of December.

The main benchmark indicator used for quoting loans in the European currency, the 12-month Euribor, this week fell to the lowest level in the last seven months.

On December 5, the 12-month Euribor fell to 3.78%, the lowest level since May this year.

In November, inflation in the Eurozone fell to 2.4%, the lowest level since July 2021. The sharper-than-expected fall in inflation has strengthened confidence in markets that the tightening cycle of monetary policy in the Eurozone has already reached an end. peak. In fact, the drop in inflation has raised the hope that starting next year, the European Central Bank may start lowering interest rates.

These expectations have been followed by a significant reduction in interest rates in the European markets. The 12-month Euribor fell by almost 0.3 percentage points over the course of a week.

These developments bring good news for Albanian borrowers who have loans in the common European currency, who in the last two years have faced a gradual increase in interest rates.

For a year and a half, the European Central Bank has been following a cycle of drastic monetary policy tightening, which brought the base rate to the highest historical level of 4.5%. This policy led the Euribor to follow the increase in the base rate and in September of this year it reached almost 4.2%, the highest level in 15 years.

Loans with variable interest rates in euros are usually built based on the performance of the 12-month Euribor, to which a fixed interest margin is added. The interest rate is re-evaluated at least once a year, to reflect changes in Euribor over time.

The increase of Euribor has caused the interest rates of loans to increase significantly and have influenced a significant inhibition of lending in euros by the Albanian banking sector.

According to data from the Bank of Albania, for the month of September, the average interest rate for new loans in euros reached 5.64%. This is the highest level recorded since the European Central Bank started raising interest rates last year. The difference between the average interest rate of home loans in Lek and those in Euro reached 1.51%, the highest level ever recorded.

A part of borrowers have even converted their loans from Euro to Lek, due to the more favorable interest rates.

For borrowers with income in lek, the increase in euro interest rates has been balanced by the positive effect of the exchange rate. But, for borrowers with income in euros, the cost of loans has increased significantly this year.

According to the Bank of Albania, loans in foreign currency accounted for 50.3% of the total portfolio of the banking sector in the middle of this year. On the other hand, the balance of foreign currency loans not hedged by the exchange rate (when the income is different from the currency of the loan) accounted for 32.3% of foreign currency loans, or 16.2% of the total loan./ Monitor