The twelve-month euribor is expected to drop to around 3.1% by the end of next year, according to market analysts. This is significant as it falls below the four percent limit set by the European Central Bank (ECB) on Friday. Yesterday, the euribor was quoted at 3.991%, and on Thursday, it was at 4.033%. This marks the first time in fifteen years that the one-year euribor has been lower than the six-month euribor, indicating an anticipated interest rate reversal.
The ECB’s policy interest rates are expected to change in response to this shift in market expectations. It is anticipated that the ECB will lower its deposit rate by 1.0 percentage points next year from the current 4.00 percent, with a possible 0.50 percentage point interest rate cut happening by July. Based on these predictions, market analysts expect the twelve-month euribor to decrease to approximately 3.1% by the end of next year.
In October, the ECB suspended its tightening of monetary policy after a year and a half due to falling inflation in the Euro area, leading financial markets to anticipate a lowering of key interest rates after curbing inflation. However, Nordea considers pricing interest rate cuts challenging according to their analysts Timo Hirvonen from Handelsbanken’s chief economist