The six‑month Euribor has risen to 2.765 percent over the past couple of weeks, compared with 2.637 percent just two weeks ago.

The 12‑month Euribor has hovered around the 3 percent-mark, at times rising above that level.

"For Europe – particularly large economies such as Italy and Germany – the price of natural gas, which has now risen to €69 per megawatt‑hour, is especially important. This means higher energy bills during the autumn‑winter heating season and, as a result, higher costs for production and other goods," Tapver, a macro analyst, said.

Rising inflation and energy prices have also made their effects known on European Central Bank (ECB) policy, Swedbank chief economist Tõnu Mertsina noted.

"While according to our forecast the ECB will raise its interest rate only in September and leave rates unchanged next year, markets see a greater likelihood of further monetary policy tightening. This has also influenced Euribor movements," Mertsina said.

Stronger economic activity, a tight labor market, higher defense and public spending, and green transition investments also point to rising inflation, he added.

Tapver, however, argued ECB decisions have less impact on Euribor than inflation forecasts. The 12‑month Euribor reflects the market's assessment of where interest rates could be a year from now.

"The 12‑month Euribor is generally more stable and always reacts more slowly to events. The current rise in the 12‑month Euribor could therefore be interpreted as a market expectation that interest rates will remain higher next year as well. The current situation in the Strait of Hormuz suggests that the six‑month Euribor will also continue rising toward the three‑percent level," Tapver said.

Mertsina took a different view. "It is quite a strong signal, but not a definite forecast. I would not draw a firm conclusion from the 12‑month Euribor that the six‑month Euribor will soon be above three percent. For that to happen, the market's expectation of further ECB tightening would first have to materialize. According to our forecast, the ECB's deposit facility rate will rise to 2.5 percent in September and remain at that level next year as well," Mertsina said.

The six‑month Euribor is currently 52 basis points above the central bank's rate, while over the past 10 years the average gap has been 15 basis points. Consequently, "soon above 3 percent" is not yet an inevitable outcome, he said.

Investors' expectation of a 0.25 percentage‑point ECB rate hike has largely been priced in. "If the central bank signals alongside the interest rate increase that there will be no further hikes, Euribor could even fall," Mertsina noted. However, if inflation remains a problem, the market will expect further hikes.

"That second risk is precisely what is present in the market right now," Mertsina said. "The rise in Euribor is not driven solely by today's central bank interest rate, but by the market reassessing how high the ECB will have to raise interest rates over the next six to 18 months in order to contain inflationary pressures stemming from energy prices and geopolitics."

Banks' loan portfolios are still growing, and there is no sign that customers are borrowing less. The economy's return to growth and continued income growth are enough to sustain borrowing.

"A six‑month Euribor at the 3‑percent level would probably not bring very significant changes to the ability of people and businesses to meet their payments, because the economy has started growing, including purchasing power and business volumes. The willingness to borrow would probably be affected, but not very broadly," Tapver noted.

High Euribor levels could affect new property developments, with buyers likely to focus on the secondary market, she added. Mertsina said a higher Euribor may not have a major impact on loan demand if the economy and incomes grow.

"If the economy and people's incomes grow, the labor market situation and confidence improve, and demand for new goods and services increases, borrowing can remain resilient. We see new customers coming in because their confidence regarding wages and the labor market has a positive outlook," he added.

The Euribor is the average interest rate that major European banks charge each other to borrow money. It affects ordinary people as many variable-rate home loans and car loans are tied to Euribor. When Euribor goes up, your monthly loan payments increase. When it goes down, your payments fall.

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