The European Central Bank is expected to lower its key interest rates on Thursday. However, what is more relevant for mortgage borrowers is what the central bank hints at its future steps. The main interest rate, i.e. the commercial banks’ deposit rate, is currently 4.00 percent. The interest rate cut has already been priced at market rates, so from the point of view of mortgage debtors, the cut is unlikely to have any immediate effects. Economists expect the 12-month Euribor to be around three percent at the end of the year.
The European Central Bank (ECB) is expected to start interest rate cuts on Thursday by lowering its key rates by 0.25 percentage points. This move is seen as a significant change in monetary policy that will pave the way for future interest rate cuts. The ECB has raised its key interest rates by 4.50 percentage points after July 2022, but the interest rate hike cycle came to an end last October and now interest rates are expected to drop.
The interest rate cut is expected to ease the position of mortgage debtors in Finland, where almost a third of households have a mortgage. The most common mortgage reference interest rate is the 12-month Euribor, which has already been influenced by market expectations of the interest rate cut. Economists predict that the ECB will cut policy rates by 0.25 percentage points 2-3 times this year, with the 12-month Euribor rate expected to be around three percent by the end of the year.
The interest rate reduction could have positive psychological effects on households and companies, restoring confidence in the future. However, broader economic effects will require more interest rate cuts and clearer indications that Euribor rates are falling. The uncertainty regarding the ECB’s future steps and interest rate outlook remains high, particularly with regard to wage developments and inflation in the euro area.
Overall, the interest rate cut by the ECB is expected to have a significant impact on mortgage borrowers, with potential benefits for consumption, investment, and economic confidence. However, the specific effects will depend on the ECB’s future actions and the evolution of Euribor rates in the coming months.