Interest rates likely to decrease as ECB considers cuts in Eurozone

Interest rates in the Eurozone are likely to continue decreasing throughout the end of the year, predicts Jan von Gerich, chief analyst at Nordea. He indicates that it currently seems the European Central Bank (ECB) may lower its key interest rates in both September and December. If this occurs, the 12-month Euribor reference rate could drop to approximately three percent by the year’s end, von Gerich told STT.

“Our forecast suggests that the reference rate will continue to decline slowly into next year as well, potentially reaching around 2.5 percent by the end of next year,” he adds.

The 12-month Euribor, which is the most common reference rate for mortgage loans in Finland, fell to its lowest level of the year on Thursday, recorded at 3.349 percent. The rate has decreased for several consecutive days. While von Gerich advises against placing too much emphasis on daily fluctuations, he notes that a decrease in the reference rate is currently more likely than an increase.

“As we are probably in a cycle of lowering key interest rates, it is quite expected for the reference rate to trend downward,” von Gerich explains. “On a daily basis, movements can go either way, and there will likely be some up days in the future. I would predict at least one up day next week.”

However, the overall trend points downward, reflecting market expectations for forthcoming cuts in key interest rates this year and next, according to von Gerich.

He also highlights uncertainties linked to Nordea’s year-end interest rate forecast. The ECB’s decisions will depend on inflation in the Eurozone, which saw new figures released on Wednesday. Current data shows inflation, or consumer price increases, at 2.6 percent in July compared to the previous year, a slight rise from June’s figure of 2.5 percent. The ECB targets a medium-term inflation rate of two percent, and von Gerich suggests that rate cuts may be delayed if inflation remains stubbornly high.