What will the price of money be when the coronavirus crisis is over, what trends can be expected, and when might they occur? What interest rates could businesses borrow at, what about the state, and what about citizens? Will the price of money fall or rise in the coming period, especially when we enter the eurozone? These are just some of the questions that interest investors.
However, these questions are equally important for citizens and businesses because the term price of money refers to the interest rate that lenders charge borrowers on borrowed funds. Therefore, it matters to all participants in the financial market whether interest rates will fall or rise, regardless of whether it concerns interest on housing and consumer loans or loans for investments or liquidity.
Although it is difficult and thankless to make predictions, as this is an unprecedented crisis in modern history, there are indicators that can more or less accurately predict what future movements in the price of money will be. It is known that just before the coronavirus crisis, interest rates were at historically low levels in both domestic and foreign money markets, but despite this, the expected credit expansion did not materialize. The reasons for this are numerous, and one of the most important is the already existing over-indebtedness of the economy on one hand, and the caution of the banking sector in lending money on the other.
Analysts from the Croatian National Bank interpret that in Croatia, low interest rates were supported by exceptionally low interest rates in foreign financial markets, particularly in the euro area, the expansive monetary policy of the CNB, and the improvement in the perception of the country’s risk due to better fiscal results and a reduction in macroeconomic imbalances.
Alen Kovač, chief analyst at Erste Bank, emphasizes that it is difficult to speculate on what interest rates the state will borrow at after the coronavirus crisis, as the interest rate is always determined by the current level of interest on Croatian government bonds, or the current perception of investors. The level of the interest rate also depends on the maturity of the debt, i.e., whether it is short-term or long-term.
– The interest rates at which the state borrowed before the coronavirus crisis were somewhat lower than they are now, not only for Croatia but for most EU and eurozone countries, as the level of uncertainty due to the decline in GDP and the increase in the deficit has risen, which has affected market sentiment and the perception of risk for each individual country. Before the outbreak of the coronavirus crisis, yields on long-term Croatian government bonds were between 0.5 and 0.7 percent. Now, the yield on bonds in the domestic market is about one percent, while in the euro market it is around two percent, as foreign markets are more volatile and react more quickly to international turbulence, Kovač points out.
