At the end of last year, there were fears that the time of cheap loans in the world, including in Serbia, was nearing its end, which most experts agreed with at the time.
Sweden Bank’s chief economist Toni Mertsina tells the Belgrade daily that by the end of 2018, they expected the six-month euribor to reach two percent in the last quarter of 2022, but it should not be ruled out that it could happen later. Mertsina says interest rates on home loans will start rising significantly after 2022. A slightly faster growth of euribor should be then expected, a European interest rate that affects the interest rate on loans in Serbia, which is currently at a minimal level. Practically, the euribor, which is below zero today, in three years could amount to two percent, which would raise today’s monthly installment by 60 euros.
“Specifically, economic growth in the euro area has slowed down and is expected to continue to slow down. This means that economic data and expectations suggest that the European Central Bank is likely to be more cautious when raising interest rates, and that is precisely what determines the euribor path”, Mertsina adds that the very recovery of Europe also marks the beginning of the growth of European interest, the euribor.
Asked if he is expecting the euribor to return to the level of four or more percent, as it did in 2008, Mertsina said that “such a level is beyond the reach of his forecast”.
National Bank of Serbia (NBS) Governor Jorgovanka Tabakovic said that she is not expecting the euribor to grow anytime soon.
” The measures taken by the European Central Bank, as well as all announcements about whether and how the ECB’s monetary policy will change, say that there will be no change by mid-2020. Also, the way we talk about further action speaks in favor of the fact that even by the first quarter of 2021, we will have no changes in monetary policy that will lead to some drastic growth of euribor”, the governor said.
The current value of euribor is minus 0.345 percent, which indicates its minimal impact on the price of credit. Ten years ago, euribor was more than 4.5 percent, and a possible jump of two percent could increase today’s loan rate of 250 euros to 310 euros.
“No one has the crystal ball to announce some long-term turnaround, but the fact is that the current situation is unsustainable for the next 20 years, that is, the euribor will not be able to continue to move around zero or in a slight minus for so long”, Zoran Grubisic, professor at Belgrade Banking Academy, said in an interview for Blic.
As for the shorter term, Grubisic agrees with the governor’s assessment for 2020, and says this is what we can see from the announcements and projections for inflation and economic growth in the euro area. “Obviously, there is no stable exit from the crisis so far, and the ECB’s reference interest rate will simply be low, including the euribor”, Grubisic says.
He estimates that today may be a good opportunity to take long-term, for example, home loans, with a fixed instead of a variable interest rate, because the fixed interest rate is only slightly higher while providing security throughout the repayment period.
“In a situation like this, I might rather consider taking a fixed-rate loan if you talk about a repayment period of 20-25 years. The difference with the variable interest rate is small and you are protected over the whole period, that is, you can count on a fixed monthly installment and you’re not thinking about the stability of euribor”, Grubisic states.
Effective interest rates on home loans indexed in euros in Serbia range from 2.7 to 5.99 percent. As euribor is down (0.345 percent), banking clients currently pay a monthly installment of around € 230 for a home loan of 50.000 euros, with a repayment period of 25 years. For a loan for a flat of 30.000 euros, for 30 years, about 125 euros should be paid per month. Current variations of the euribor are minimal, so clients almost do not feel it at the level of the installment, but if the euribor would increase by 1 percent, such a jump would mean installments higher by 30 euros for home loan users. If it reaches the forecast of 2 percent, it could increase monthly expenses up to 60 euros.
Euribor is the interest rate at which first-class banks lend to euro deposits. In Serbia, banks use euribor as a reference interest rate, as a basis in the structure of nominal interest in the calculation of interest on loans indexed in euros. Prior to the economic crisis in 2008, the euribor reached a record 4.7 percent, to fall to below 3 percent the following year, and to less than 1 percent in 2010. After a slight recovery in the coming years, euribor has been in the red since 2016 and has not yet “recovered”.