Euro borrowers benefit / 12-month Euribor falls below 3% for the first time in 20 months

2024-09-14 08:00:00, Ekonomi CNA

Euro borrowers benefit / 12-month Euribor falls below 3% for the first time in

Illustrative photo

Interest rate cut expectations have pushed the 12-month Euribor below 3% for the first time since late 2022.

According to the latest publication of this indicator, dated September 11, the 12-month Euribor fell to 2.96%, the lowest level in the last 20 months.

As expected, the European Central Bank decided on Thursday to further reduce interest rates. The daily deposit rate decreased to 3.5%, that of the main refinancing operations to 3.65% and the daily loan rate to 3.9%.

As the markets generally anticipate the ECB's moves, the significant decline of the Euribor started a few days ago. The 12-month Euribor fell below the 3% mark since September 9.

This was the second reduction in interest rates by the ECB for this year, after the previous reduction undertaken in June.

Euribor, mainly the one with 12-month maturity, is also used by Albanian banks as a benchmark indicator for loans with variable interest rates in the euro currency. The movements of this indicator also affect Albanian borrowers in this way. The reduction of the Euribor is expected to bring about the reduction of loan installments with variable interest rates in euros.

In fact, such a trend has already started in the first part of this year. According to data from the Bank of Albania, the average interest rate for the loan portfolio for the purchase of housing in euros for individuals decreased to 4.57%, from 4.85% at the end of last year.

Since last year, a clear tendency of the decrease of lending in euros and the shift towards the lek was observed. This appears to have been driven by lower interest rates for local currency loans. Even, a good part of the borrowers preferred to convert the loans from euro to lek, also thanks to the favorable exchange rate.

The reduction of interest rates for the euro may gradually make credit in the European currency attractive again, but on the other hand, it remains to be seen whether the Bank of Albania will follow the same path.

Currently, the base rate for the lek (3%) still remains at lower levels compared to the euro. The Bank of Albania followed the ECB and cut the key rate in July, for the first time in four years. Inflation in Albania has dropped to 2%, the lowest level in the last three years and below the Central Bank's 3% target.

The drop in inflation seems to create the space for further reductions in interest rates, however, on the other hand, the Bank of Albania is facing dilemmas related to the very rapid growth of lending, and a further reduction in rates may further stimulate the demand for credit in the economy.

The performance of Euribor, on the other hand, also affects the balance sheets of commercial banks in Albania. The significant increase in interest rates and Euribor led to a significant increase in interest income in the European currency.

This growth largely supported the record profit of 28.5 billion lek reported by the Albanian banking sector for 2023. A gradual decline in Euribor during this year is expected to reduce interest on euro assets and banks' income from interest on instruments in foreign currency./ Monitor.al