RIGA - The European Central Bank's (ECB) decision to lower its three key interest rates by 0.25 percentage points does not mean that EURIBOR rates, which are usually applied to loans, will also decrease immediately, Oļegs Andrejevs, Head of Savings, Investments and Pension Retail at SEB Banka, told LETA.
He explains that the financial market lives in the future, which means that market players' expectations are factored in rates well in advance. This time, the ECB's June rate cut was already priced in EURIBOR rates, therefore the ECB's decision should not have a significant impact on the current EURIBOR rates in the short term.
However, the ECB raised its inflation forecast for the euro area in 2024 and 2025 by 0.2 percentage points (to 2.5 percent this year and 2.2 percent next year respectively) - this was not widely expected on financial markets and was immediately factored into rates. For example, after the ECB meeting market participants downgraded the probability that the ECB would also cut rates in October, and almost ruled out the possibility that this could happen in July. This immediately pushed up euro rates.
Andrejevs predicts that the next rate cut is unlikely in July, but there is chance that the rates could be cut in September.
According to Andrejevs, the ECB will make further decisions based on economic data. The same applies to EURIBOR and other rates: if the economic situation is favorable, it is possible that EURIBOR rates will be cut by the next ECB meeting, he explained.
As reported, the ECB Governing Council at a meeting in Frankfurt on Thursday decided to lower the three key ECB interest rates by 25 basis points.
The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be decreased to 4.25 percent, 4.5 percent and 3.75 percent respectively.
The new ECB rates will take effect on June 12, 2024, the ECB said in a statement.
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