Negative Interest Rates Not Realistic for Croatia

Total Croatia News

ZAGREB, December 8, 2019 – Negative interest rates are appearing in some European money and sovereign bond markets but not on Croatian bonds, the Croatian Banking Association (HUB) says in its latest analysis, noting that the necessary prerequisites must be created for negative interest on loans and that in Croatia’s case, this is not realistic for now.

The HUB cites Eurostat data on ten-year sovereign bond yields in local currencies. The governments with negative yields in September were Denmark (-0.59%), Germany (-0.59%), Ireland (-0.01%), France (-0.28%), Latvia (-0.11%), Luxembourg (-0.50%), the Netherlands (-0.43%), Austria (-0.30%), Slovenia (-0.16%), Slovakia (-0.34%), Finland (-0.30%) and Sweden (-0.23%).

Negative interest rates are an obvious reality, but it must be noted that the prerequisite for them is that the country should be a member of the euro area or very closely tied to it and developed, like Denmark and Sweden, HUB says in its “Are negative interest rates a reality?” review.

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Croatia’s ten-year sovereign bond yield was 0.49%. For now, it is far from the minus zone, HUB says.

However, HUB notes, when interest rates on long term sovereign bonds end up in the negative zone, it is very likely that interest rates on loans will stay positive because of the deposit-to-loan conversion costs.

Average interest rates on long term corporate loans in Sweden (1.22%) and Belgium (1.43%) are the lowest in the EU. Interest on housing loans in September was lowest in Slovakia (1.04%) and Germany (1.24%).

Although Croatia has not introduced the euro yet and is not a developed EU member state, average interest rates on corporate and housing loans are within the euro area’s interval, as if it had introduced the euro, HUB says.

For the first time, the average interest on housing loans in Croatia dropped below 3% (2.8%).

More economy news can be found in the Business section.

 

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