As a survey conducted by Reuters at the end of March showed, economists generally expect that the European Central Bank (ECB) will not change interest rates this year, writes Diena.
At the same time, more than a third of economists predict at least one rate hike due to rising energy prices and heightened inflation expectations. This opinion sharply contrasts with the assessments of financial markets, which suggest that the ECB will raise rates at least three times this year amid the war between the US and Israel with Iran and the blockage of an important corridor for transporting oil products in the Strait of Hormuz.
Economist Alexander Izgorodin from Citadele Bank in Lithuania believes that the ECB will likely act cautiously, considering weak economic growth, a cooling labor market, and uncertainty related to geopolitical risks. Although several rate hikes are currently factored into financial markets, these expectations may be premature as important inflation and wage dynamics data will become available later. With the onset of military strikes by the US and Israel against Iran, EURIBOR rates, especially long-term ones, have begun to rise more rapidly. Since the beginning of March, the three-month EURIBOR rate has increased by 5%, the six-month rate by approximately 20%, and the annual rate by a third.
"Higher EURIBOR rates mean increased loan payments, which may reduce household activity and, consequently, affect the pace of lending. At the same time, uncertainty is dampening consumption and investment, so the development of lending in Latvia may become more moderate," notes Izgorodin.
At the beginning of this year (up to and including February), lending in Latvia continued the trend of the previous year - lending indicators for both enterprises and households grew quite rapidly. "The annual growth rate of lending in Latvia remains one of the highest in the eurozone and significantly outpaces the country's economic growth. Accordingly, the volume of loans in relation to gross domestic product is also increasing, although it is still significantly lower than in other eurozone countries. This allows for further growth, unless unpredictable and sometimes chaotic geopolitical situations bring about corrections," says Bank of Latvia economist Matiss Miroshnikov.
