Rates have been falling for a year now and the relief on home mortgages but also on business loans is notable, one percentage point from December 2023. The ABI can only hope that the ECB will continue on this path but the Central Bank must at the same time deal with the inflation and exchange rates. On average, according to the monthly Abi report, in October the rate on new transactions for the purchase of homes decreased to 3.28%compared to 3.31% in September 2024 and down from 4.42% in December 2023.
Another significant element, underlined by the deputy general director of the Abi Gianfranco Torriero, is the equally significant decrease in the average rate on business loans, from 5.45% in December to 4.60% in October. In the last month, in particular, a decrease of 0.30 percent was recorded. The ABI places the trend within the horizon of the trend of average market rates with a look at the latest movements. In the last two weeks the 3-month Euribor rate has averaged 3.04% (3.17% was the October average), 96 basis points less than the maximum value recorded in October 2023. The Bots rate at six months was 2.95% (2.99% in October); the 10-year IRS rate (widely used in mortgages) was 2.39% (2.43% in October). The data on futures “make us believe that there could be a further cut” and “it is certainly something to be hoped for” comments Torriero, even if he underlines that the ABI does not directly make estimates. However, it is clear that “we are recording an Euribor which suggests that there could be a further cut in December too” and, he comments, “an easing of monetary policy is essential to give certainty to those who want to invest”.
Economic growth is still weak, despite the better than expected figure (+0.4%) in the euro area in the third quarter and the European Central Bank is confident that inflation will converge on the target of 2% in 2025, although it remains a question mark on the performance in the services sector. «The main question mark is the reason for this fragile growth. And here a key factor is the evolution of consumption”, underlined Vice President of the ECB, Luis de Guindos, during a public debate of the Trilateral Commission in Madrid. The ECB cut rates three times between June and October, and a further cut is expected for the December meeting, when Frankfurt will have the new growth and inflation projections for 2027 in hand. Market expectations are for a new cut from a quarter of a point which would bring the deposit rate to 3%.
A more prudent scenario than a half-point cut, which is also influenced by the recent words of the Fed president, Jay Powell, who, faced with the stability of the American economy, said that there is no rush to cut rates again. The ECB could anticipate, with a more decisive move on rates, the probable negative impact that would arrive if the Trump administration puts into practice the threats of new duties on imports from Europe. Higher prices on the American market would reduce the competitiveness of European goods but if at the same time, the reasoning goes, the dollar strengthened against the euro, prices for Americans would otherwise be reduced: a currency weapon in a trade war. But the ECB cannot deviate too much from the Fed’s guidelines: faced with the economic growth differential, the euro is already in sharp decline to one-year lows against the dollar, with several investors eyeing parity in the coming months