Analysts predict more interest rate hikes and increased credit restructurings

With the increases on the 27th of July, the deposit facility rate rose to 3,75%

Analysts contacted by Lusa predict that the ECB will raise interest rates again, despite fears about a recession in the euro zone, increasing pressure on those who have loans indexed to Euribor and the restructuring of housing loans.

Last week, the European Central Bank (ECB) increased the key rates again and the president of the institution left open new increases. Christine Lagarde said that the result of the September meeting «may be an increase or a pause», but it will certainly not be a cut, and highlighted that even if the ECB chooses to keep the three reference rates unchanged, this «does not mean that be definitive”.

With the increases on 27 July, the increase in the deposit facility rate rose to 3,75%, the interest rate on the main refinancing operations to 4,25% and the interest rate applicable to the permanent liquidity facility to 4,5%.

The financial analyst from the economic studies department of BPI Vânia Patrícia Duarte says that it is likely that «there may be another rise in interest rates by the end of the year», even though the ECB must be «already close to the peak of interest rates».

For Activtrades analyst Ricardo Evangelista, the scenario is unclear, so «everything will depend on the macroeconomic and inflation data that come out»:

On the one hand, he recalled, the latest data on inflation in the euro zone show that it is still high - despite inflation in the euro zone having slowed down to 5,3% in July, underlying inflation, which excludes energy, food, alcohol and tobacco, remained stable at 5,5%, a historically high level – but, on the other hand, signs of economic contraction could slow down Frankfurt.

The eurozone economy grew, in the second quarter of the year, by 0,6% year-on-year and 0,3% year-on-year. The German economy, on the other hand, stagnated (0,0%), after contracting by 0,1% in the first quarter.

For Forste Finance analyst Carla Santos, the ECB's "wait-and-see posture" shows concern about a possible recession and tries to find a balance between interest rates and inflation. Even so, she adds that, even if it doesn't happen in September, "the most likely thing is that the ECB will have to intervene more often later this year".

Also, XTB analyst Henrique Tomé expects further rises and considers that «the great challenge at this moment for the ECB is, without a doubt, to be able to control inflation and avoid the scenario of recession throughout the euro zone».

“Economic activity in the euro zone is, in fact, slowing down and the main European economies, such as Germany, France and Italy, have been heavily penalized with the increase in interest rates, and this may lead the ECB to consider stopping or slowing down the pace rise in interest rates if economic activity continues to slow down at the current pace”, he said.

Accompanying the rise in interest rates will be the Euribor interest rates, so the forecast is that they will still rise and start to fall in 2024. On Wednesday, the 12-month Euribor rate rose to 4,081%, the three-month Euribor rose to 3,733%, while the six-month Euribor fell to 3,944%.

In Portugal, with more than 90% of home loan contracts indexed to Euribor rates, this will have a direct impact on the monthly installments paid by families to banks.

In the first semester alone there were more than 62 thousand credit restructurings and renegotiations and analysts estimate that these will increase. This is because, in addition to the rise in credit, families still have to face the rise in prices that salaries do not keep up with and the savings that have been used to maintain consumption levels are likely to start to be insufficient.

Henrique Tomé, from XTB, says that in a scenario of new interest rate increases «the degree of default is starting to increase significantly and should be a warning sign, both for families and for monetary policy makers».

Vânia Patrícia Duarte, from BPI's research department, recalls that the «data for the first quarter already reveal a slight increase in 'non-performing' home loans [in default]», plus 12 million euros in non-performing loans compared to the last quarter 2022, and that it is "possible that there is a stabilization or slight deterioration of the indicators" and increases in restructuring.

Even so, the high level of employment and the Government's support measures should mitigate a more serious situation.

Carla Santos, from Forste, appeals to families to try to restructure loans while they can still look for better 'spread' and insurance conditions, as if they default, their name will be 'signaled' at the Bank of Portugal and they lose negotiating power.

Ricardo Evangelista also predicts that there will be "a greater risk that a growing number of families will not be able to meet" their obligations with banks, with further increases in interest rates.

In a comment to the fact that the banks guarantee that, for the time being, there is not a generalized problem in housing credit, but an occasional one in some fringes - even if they admit an aggravation -, the analyst quoted a sentence by Ernest Hemingway: same way, "first slowly, then quickly".