The Euribor, the index to which most mortgages refer, maintains its escalation in April and is already trading at around -0.08%, compared to -0.168% with which it started the month. The explanation must be found in the latest measures approved by the European Central Bank (ECB).
The Euribor continues, in this way, the increases started on March 12. In just 20 sessions, the indicator has gone from marking a new record low of -0.368% to moving at levels close to 0%.
The indicator began its collapse before the March meeting of the ECB as it anticipated the body that governs monetary policy would follow in the footsteps of the Federal Reserve and lower interest rates.
However, it did not do so and opted to improve the conditions of its liquidity auctions, better known as LTRO. Thus, it approved a cut of -0.5%.
The Euribor is triggered by cheap ECB financing to banks.
In the case of TLTROs, the same but in the long term, the cut was -0.75%. This means, in the words of Joaquín Robles, XTB, that banks prefer to finance themselves cheaper with these liquidity sales proposed by the ECB than in the interbank market.
With fewer operations in the interbank market, this causes prices to rise. Hence these so striking rebounds that the Euribor is experiencing.
Another explanation is that the ECB seems to rule out, for the time being, that it is going to undertake a drop in interest rates, as expected by the market, not the official price of money, which remains at 0%, but of the deposit rate that is between -0.50% and -0.60%.
The main consequence is that the mortgaged that review in April will be able to experience this change of trend in their mortgages.
Although, they still do not notice it in their mortgage installments, they will see a change in trend that will be confirmed in the coming months. We recall that the Euribor in April 2019 closed at -0.12%, while in May it stood at -0.134%.
If this trend continues and there is no change in the horizon of European monetary policy, the Euribor will be around -0.10%, enough to make mortgage payments more expensive by a few euros.
The Euribor marks its lowest level in a month of March despite the acceleration in recent days.
The role of the ECB:
The Euribor has come under great pressure in recent months from the ECB. In May 2019, a decline began again when the former president of the ECB, Mario Draghi, pointed to a new package of measures to boost growth in the eurozone and raise inflation to levels close to 2%.
That decline was cut short when the current president of the body, Christine Lagarde, announced a strategic review, to bring monetary policy closer to more current levels.
However, the economic crisis caused by the coronavirus pandemic, forced to suspend the strategic review of the ECB and undertake a new purchasing program with more than 750,000 million euros.