Whether the European Central Bank (ECB) is acting correctly to calm the financial turbulence will not be known until the storm subsides. And for now the end is not in sight after the panic that awoke on Friday around Deutsche Bank. Regarding interest rate policy – the main tool available to the ECB to slow down the economy or encourage it – there are doubts about which strategy to follow.
A sample of this uncertainty is the erratic behavior of the Euribor in the last 15 days. Since the US bank Silicon Valley Bank was rescued, the Euribor has fluctuated between 3.9% on Friday the 9th to 3.3% on Tuesday. It is an absolutely unusual volatility in the indicator that usually maintains upward or downward trends without major fluctuations.
"The fact that there has been financial turbulence casts doubt on the roadmap for rate increases and therefore the Euribor, first, becomes more volatile and also goes down, on occasion," reflects Santiago Carbó, director of Studies Funcas Financiers.
In a report, CaixaBank Research recalls that the "Euribor is the European interbank offer rate (Euro InterBank Offered Rate, in English), that is, the interest rate at which banks lend money to each other at different maturities." The Euribor anticipates where the rates will be in the medium and long term. This means that the rises and falls of these weeks show that there was no clear idea of what the ECB would do in the current scenario.
Sofía Rodríguez, chief economist at Banc Sabadell, points out that "there has been a clear downward recalibration in the prospects for increases in official rates for the second half of 2023 and 2024. The market no longer discounts that the marginal deposit rate will go to reach 4%”. Rodríguez adds that “of the three official interest rates set by the ECB, the most appropriate to understand the impact of the central bank's strategy on the Euribor is the rate of the marginal deposit facility, which stands at 3%. Given the excess liquidity, the 3.5% that is set for the main financing operations (the traditional governing rate) is now not so decisive”.
Carbó believes that there is a lot of uncertainty about the next decisions of the ECB and the Federal Reserve. “More increases cannot be ruled out, because that is what they said,” according to the Funcas economist. “Everything is going to depend a lot on how this episode of financial stress is resolved, which is generating many problems and which also calls into question whether we can continue to maintain the monetary policy strategy that we have up to now with rate hikes,” he adds.
Meanwhile, the practical derivative for citizens hardly changes because the Euribor has gone down for a few days. Mortgage installments are calculated from the average Euribor for the month. And for now it is still not only higher than last year but also above the previous month. The average for what we have for March situates it at 3.67%. Last year it was at -0.24%. This means that for a 25-year mortgage of 150,000 euros with a differential of Euribor plus one point, the increase in the fee is about 300 euros per month.
Meanwhile, authorities across Europe are trying to calm the markets. Yesterday it was the turn of the Vice President of Economic Affairs, Nadia Calviño, who valued the "strength" of Spanish banks. “The rapid rise in interest rates has led, first of all, to deflate the bubbles that existed in some markets, such as in the crypto sphere” and to “show the vulnerability and fragility of some banking models, such as It has happened in the United States, or from some of the banks in Europe,” he said.
