A reversal in the movement of interest rates could occur in the middle of next year.
Source: MONDO/Stefan Stojanović
The reference interest rate has been rising for more than a year and a half, and so is the Euribor, which is included in the calculation for indexed loans, most often housing loans. There could be a reversal in the movement of interest ratesaccording to professor Zoran Grubišić, in the middle of next year.
Inflation in the Eurozone is falling, but at too slow a pace. The European Central Bank raised the benchmark interest rate by another 25 basis points. In Serbia, it now amounts to 6.5 percent. The US Central Bank (FED) increased the key interest rate by a quarter of a percentage point, explaining that inflation has not stopped and that its growth continues. This is the highest interest rate in almost 20 years.
This is the case in Europe and America, and what is the situation in our country and whether we will finally get a break from increasing interest rates, says professor at the Banking Academy Zoran Grubišić. He explained how all this “spills over” to the state of Serbian finances and the household budget and whether there is a right moment to buy an apartment on credit, without tripping over the interest rate and “hitting the floor”.
The European Central Bank raised the interest rate for the ninth time in a row, to 4.25 percent, and it is now the highest since October 2008. When will loan users feel relief, i.e. when will interest rates start to fall? “It is difficult to say with certainty when the trend will reverse and interest rates will start to fall, what seems pretty certain is that it will not happen until the end of this year, it is even very likely that there will be one to two interest rate hikes for 0.25 percent each.
Global uncertainties are still very present, inflation (although in the fall zone) is still present and far from the target level, so it seems quite realistic that the first half of the next year will be marked by high interest rates, that is, that there will be no significant relaxation in the restrictive monetary policy. I think that until the expected and, I would say long-desired, reversal in the movement of interest rates, it could to come in the middle of next year, but even then, interest rates will not suddenly drop to the level of the end of 2021,” said Zoran Grubišić.
Is early repayment of the principal worth it, even in parts? “In the zone of such high interest rates, especially if you are at the beginning of repayment, i.e. if you have a long period left until the end of repayment (which is a typical situation with housing loans), the so-called partial early repayment of the loan pays off. In this way, you can significantly save in the interest that you have to pay to the bank, and in the future you can significantly facilitate the current functioning with the budget by reducing the installment.
I believe, however, that one should be careful here as well, so that the first task is to preserve satisfactory liquidity, which means having enough cash in reserve in such turbulent times. If this is available, and there is still excess liquidity from which to invest, early repayment is certainly one possibility with a significant security effect,” explained the interlocutor.
Under these circumstances, we pay off two apartments and get one. In which scenario can the installment loan return to its previous level? Are we in for a hot autumn? “The story about paying for two apartments now is valid only on the assumption that such high interest rates will remain for the entire duration of the loan, and that will certainly not be the case. Interest rates are close to historically record levels and it is safe to say that their average value in a long period such as a home loan will be below this level.
Of course, we are commenting all this on the vast majority of loans that were taken out at a variable interest rate, who took a loan at a fixed interest rate (and such are in a large minority), for him such a calculation is valid according to the interest rate at which he took it, i.e. it is certain how much will return the money to the bank with interest,” said Grubišić.
Is credit a bad thing and what does smart borrowing mean? “Credit in itself is generally not a bad thing and I often like to point out, when it comes to buying an apartment, that the right moment is always when you need an apartment, and that speculating with the movement of real estate prices and changes in interest rates over a period of 20 to 30 year is not a grateful thing and that’s where all the forecasts fall into the water.
Primarily, I am an advocate of a housing loan, which solves the housing issue for the family, and which at the same time represents a significant private investment. It goes without saying that smart borrowing means that in each loan you always make sure that the total monthly burden for all the obligations you have assumed is at a reasonable level, and according to me, this is up to a third of your total income. Then you also have some reserve when the war jumps in some period,” he said.
What do you advise citizens – should they use checks, because they are the cheapest and have no interest, cash loan, allowed minus or credit card? “As far as financing current consumption is concerned, it is certainly the most advantageous to take a cash loan, because the interest rates here are by far the lowest compared to other known alternatives.
A credit card is the most expensive if you don’t repay the installments according to the agreed dynamics and if you then have that relatively high interest on the rest of the debt. However, it should be noted that a credit card can also be used wisely and if you spread your installments over a period of one to two years, you will not pay the bank any interest if you respect the agreed dynamics.
The permitted minus is certainly the most expensive, I generally do not recommend it or if you are already forced to use it temporarily, then at least get out of it relatively quickly, that is, so that you don’t get into a bad habit with such borrowing,” explained the interlocutor.
How and where to save, in a bank or piggy bank, in dinars or euros. Government bonds are not as popular as the classic form of savings, due to ignorance of its characteristics and earning potential? Should you engage in this type of savings? “We are a classic example of a European bank-centric market where by far the most savings are made in the bank, and most often in hard currency (euro), although all experience has shown that so far those who saved in dinars have fared much better, and then there is no tax payments, so the net effect is even greater.
Government bonds are not savings, but an investment because it is about the yields that are obtained, not about interest. One big obstacle is the nomination of the so-called euro bonds because the denominations that are bought for long-term bonds range up to 100,000 euros, so this is often not a story for small players.
With dinar bonds, the story is a bit different, but then the currency risk is assumed for a long period of time, which our investors are often not ready to take on. I agree that it is largely due to ignorance of the characteristics of this type of investment in long-term securities,” Professor Zoran Grubišić concluded the conversation.
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(MONDO/RTS)
Inflation in the Eurozone is falling, but at too slow a pace. The European Central Bank raised the reference interest rate for another 25 basis points. In Serbia, it now amounts to 6.5 percent.
The US Central Bank (FED) increased the key interest rate by a quarter of a percentage point, explaining that inflation has not stopped and that its growth continues. This is the highest interest rate in almost 20 years.
This is the case in Europe and America, and what is the situation in our country and will we finally get a break from the increase in interest rates for Internet portal RTS-a Professor at the Banking Academy Zoran Grubišić speaks. He explained how all this “spills over” to the state of Serbian finances and the household budget and whether there is a right moment to buy an apartment on credit, without tripping over the interest rate and “hitting the floor”.
The European Central Bank raised the interest rate for the ninth time in a row, to 4.25 percent, and it is now the highest since October 2008. When will loan users feel relief, i.e. when will interest rates start to fall?
It is difficult to say with certainty when the trend will reverse and interest rates will start to fall, what seems pretty certain is that it will not happen until the end of this year, it is even very likely that there will be one to two interest rate hikes per 0.25 percent.