Euribor has doubled in six months. More expensive loans coming

The three-month Euribor, the indicator to which the cost of loans to customers is tied, has gone up to 1.17% from 0.6% in the summer of 2010, on fears of ECB raising the key rate for euros.

The loans in euros, which account for two thirds of the funding granted by banks to companies and individuals, will become more expensive this year, as the European Central Bank raises the key rate to fend off inflationary pressures created by the skyrocketing oil prices.
As far as a customer with a 30,000-euro mortgage loan repayable in 30 years is concerned, a one-percent interest rate increase starting from 5.8% per annum (the market average at the moment according to National Bank of Romania data) leads to an increase of the monthly instalment of 20 euros to 226 euros.
Anticipation created by the recent comments from the bank’s officials about the key rate alone drove up Euribor, which reflects the cost at which top banks lend euros to each other, to the highest levels since the summer of 2009.
ECB’s key rate has stayed the same at the all-time low of 1% per annum since May 2009.
The oil price has almost doubled since last summer and along with the increase in food prices drove eurozone inflation to 2.4% at the moment, higher than the cap accepted by the ECB, 2%. Under the circumstances, analysts expect 2011 to see two or even three euro key rate increases.
Nicolae Dănilă, economics professor and former BCR chairman, says a spiral is about to begin that will take interest rates much higher than the current levels, which will cause some euro zone countries, as well as some other countries in the EU, to request debt restructuring. Those to suffer the most might be the companies and individual customers to which banks might transfer some of the increase in loan prices.