What is the Euribor?
The Euribor (Euro Interbank Offered Rate) is the interest rate at which banks lend each other money at different maturities (one week, one month, three months, six months and one year). This interest rate serves as a benchmark to calculate the cost of mortgages in the eurozone.
How is the Euribor calculated?
To calculate the Euribor, there is a panel of banks (18 currently) that report every day to the European Money Market Institute (EMMI) the rate at which interbank loans are made and, for each maturity, the average is calculated once the outliers are excluded.
The Euribor is sensitive to the decisions of the European Central Bank (ECB). In fact, between December 2021 and September 2023, the twelve-month (12M) Euribor increased by 470 bp and the official ECB rates did so by 450 bp.
In a way, the 12M Euribor today reflects the average expected short-term rates, such as those of the ECB, over the next 12 months (plus a premium, which includes elements such as the expected counterparty risk, liquidity of the financial system or uncertainty regarding monetary policy).
Thus, the expectations of ECB rate increases or cuts translate into increases or reductions in the Euribor, and therefore into cheaper or more expensive loans to families and companies.
Value of the Euribor in 2023
The 12M Euribor oscillated in 2023, going from 3.3% to 4.2% in the first nine months thanks to the ECB rate increases (its official rates increased by 200 bp over the same period), and the expectation that the ECB would keep its rates high for a long time.
After the ECB rates reached their peak in September 2023 (with a depo rate of 4.00% and a refi of 4.50%), the 12M Euribor stabilised moderately above 4.0% at first, and then began to decrease to close out 2023 at around 3.5%, driven by a change in the financial market's expectations for the ECB's monetary policy in 2024.
