Euribor will gradually decline in 2024, Bank of Portugal says.

Families with variable rate mortgages are now seeing their housing costs rise with EURIBOR rates hitting 4%. But there could be some good news coming soon. Banco de Portugal (BdP) predicts that the rise in housing costs may be coming to an end as market experts expect EURIBOR rates to continue to fall throughout 2024, but "gradually", reaching "a little over 3% by December 2024". On the impact of interest rates on variable rate mortgages, the regulator, led by Mario Centeno, says that "all variable rate contracts have already registered an increase in the index" as EURIBOR rates have already been rising for almost two years, today reaching a level of 4%, it says''values to reach a little over 3% by December 2024, the banking regulator notes. According to Mario Centeno, head of the BdP, the real interest rate (the difference between the nominal interest rate and inflation) should still continue to rise in the coming months, which will exacerbate the problems of families. And he also implies that nominal interest rates have already peaked but will remain so for some time. Keep up with all the real estate information and the latest in our daily and weekly newsletters.

The ECB's interest rates are set to fall for an "extended period of time".

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However, the evolution of EURIBOR rates will depend on the European Central Bank's (ECB) decisions regarding its''being now in a "watchful and focused" state. Especially since the regulator believes interest rates have reached a level that, if maintained long enough, will have a significant impact on getting inflation back to the 2% target in time. While monetary policy compression is taking longer to have an impact on the economy, this is not happening in the banking sector. "The rise in key interest rates in the euro area is being transmitted to credit conditions" because "tight credit conditions are manifested in changes in interbank interest rates," BdP explains in the report. And, consequently, "new home loans (excluding refinancing) in Portugal showed''annualized decline in the first nine months of the year'." "Investor expectations, encapsulated in EURIBOR futures, about ECB interest rates indicate that future rate cuts will occur more gradually and last for a longer period than May 2023," the BdP report said.

Recently, Mario Centeno indicated that it would be ideal for ECB rates to be fixed at around 2%, consistent with inflation. But Lagarde warned that "it's not yet time to shout victory" despite eurozone inflation falling to 2.9% in October. "We may act again if it becomes clear that there are growing risks of failing to meet our 2% inflation target over the medium term," the ECB chairwoman warned.

The main risks include, for example, conflicts in''act in such a way that long-term inflation expectations are anchored to the price stability target,' the Portuguese regulator concludes.