If there is one financial term popularized for the general public, it is undoubtedly Euribor. It is the interest rate applied to euro-denominated loans between banks and also serves as a reference for variable-rate mortgage loans.
Many will also recall that Euribor reached its highest level last October at 4.2%, as a result of the monetary policy activated by the European Central Bank (ECB) against inflation. However, since then it has been falling almost continuously, reaching 3.08% at the end of August, its lowest level since 2022.
Furthermore, the interest rate on new mortgage operations was, in July, half a percentage point below last year’s level and also well below the Eurozone average, standing at 3.34%. This decline was also observed in interest rates for corporate financing, which, in the case of SMEs, is half a percentage point lower than the Eurozone average.
The decline in Euribor is good news. On the one hand, families and businesses are already experiencing a decrease in their financing interest rates. Lower interest rates can favor and boost economic activity, increasing the demand for financing. It also reinforces the positive trend in delinquency, as the latest data from June showed a decrease to 3.43%, reaching historical lows.
The fall in Euribor anticipates the continued decline in official interest rates by the ECB, which currently stand at 4.25%. Isabel Schnabel, a member of its Executive Board, stated a few days ago that the inflationary risk derived from a decrease in official interest rates is now lower, thus showing her confidence in containing inflation, which at the end of August fell in Spain to an annual 2.2%.
This figure approaches the ECB’s medium-term objective, which began raising interest rates in July 2022 to curb inflationary pressures that drove the indicator to around 10.7% in September of that year, compared to the near-zero levels recorded at the beginning of this decade. This price increase penalizes all economies, but especially the most vulnerable households. This was what motivated the Central Bank’s reaction, without forgetting that the rate hike also entailed its normalization, after the exceptionality of almost a decade of negative rates.
Therefore, at its last meeting in July, the supranational authority linked future decisions on official interest rates “to the assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.” Thus, the ECB on this occasion decided to maintain rates, although admitting that most indicators of underlying inflation remained stable or were declining, and that inflation would remain above 2% well into next year.
Given this outlook, it is worth remembering that access to financing is always a major contribution to well-being and growth. And that financing the economy, families, and businesses is the main function of banks, always with the aim of offering the best possible conditions and with all the necessary responsibility, to serve a dual purpose: to protect the client and to safeguard the health of their balance sheet. Therefore, the strength of banks is also a sign of the economy’s prosperity.
José Luis Martínez Campuzano, spokesperson for the Spanish Banking Association
