Interest rate barometer
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June 20, 2023
Analysis
John Romain
How will the interest rates evolve?
The ECB cut its official interest rates in early September. They adjusted the deposit rate downwards by 25 basis points to 3.5%. Before June, the deposit rate was still at 4%, the highest level since the introduction of the euro. This is to curb inflation. At 1.8% in September, inflation is below the ECB's 2% target level. Wage growth also points towards lower inflation. The economy is struggling. We expect the deposit rate could fall further to 3 per cent by the end of 2024 and to 1.50 per cent by the end of 2025. In line with this, interest rates on short-term 1-year mortgage loans will also come down.
The 10-year rate on Belgian government bonds now stands at 2.9 per cent, some 40 basis points lower than in early July. We expect 10-year yields to move further down. According to our estimates, 10-year rates will fall to 2.7% by the end of this year and to 2.5% by the end of 2025. In line with this, rates on long-term fixed-rate mortgages will also come down.