Hormuz Strait tensions could push six-month Euribor toward 3%

The six-month Euribor rate continues to climb, driven by uncertainty over the conflict between the United States and Iran, rising energy prices and ongoing inflationary pressure, news portal ERR.ee reports. Over the past two weeks the rate rose from 2.637% to 2.765%, while the 12-month Euribor has hovered around 3% in recent weeks, at times exceeding that level.

According to LHV bank macro analyst Triinu Tapver, the increase is driven mainly by expectations of accelerating inflation in the eurozone, partly fuelled by more expensive energy. A particularly important factor for Europe's large economies is the price of natural gas, which has risen to 69 euros per megawatt-hour — a development that could push up energy bills during the autumn-winter period and, in turn, raise the cost of production and other goods.

Diverging forecasts

Swedbank chief economist Tõnu Mertsina notes that inflationary pressure is also shaping expectations about the European Central Bank's policy. Although Swedbank forecasts the ECB will raise its rate only in September and then hold it steady next year, financial markets are pricing in the possibility of further monetary tightening.

Tapver believes the six-month rate could keep moving toward 3%, arguing that the 12-month Euribor — which typically reacts more slowly — already reflects market expectations of higher rates persisting into next year, and that the current situation in the Strait of Hormuz points to continued growth toward 3% for the six-month rate. Mertsina, however, stresses that breaching that level is not yet inevitable, since it would require the market's expectation of additional ECB tightening to materialize. Swedbank projects the ECB deposit rate will rise to 2.5% in September and remain there through next year.

The six-month Euribor currently sits about 0.52 percentage points above the ECB rate, compared with an average gap of roughly 0.15 percentage points over the past decade.

Loan demand still resilient

Despite the rise in Euribor, demand for loans has remained steady, as economic growth, rising household incomes and business activity have so far offset the impact of higher interest rates. Sectors with large investments, long cash-flow cycles and heavy debt loads — including real estate, infrastructure and parts of industry — are seen as most exposed to further Euribor increases.

For the housing market, a higher Euribor could mean continued weak demand for new projects, though Tapver notes that a rate around 3% is not yet high enough to significantly change the market's trajectory.