Comments by Lukas Baškys, Chief Business Banking Officer at SME Bank
The decision of the European Central Bank (ECB) to reduce the key interest rate by 25 basis points to 2 percent provides some financial respite for small and medium-sized businesses with loans, especially those businesses that are sensitive to interest rate changes. The impact of the ECB’s decisions is felt by the country’s businesses most through changes in the European interbank market interest rates (EURIBOR). Since the heights of autumn 2023, when EURIBOR exceeded 4 percent, this indicator has already decreased by more than half. Such a decrease in interest rates means that the monthly payment of a 3-year 1 million EUR business loan is reduced by almost a thousand euros. In a complex and unstable international environment, the ECB’s decision is also a small counterweight to negative factors, such as tariff wars.
Financial market participants have been expecting this ECB decision for some time – this was widely priced in by the markets. Can small and medium-sized businesses expect even lower interest rates? Especially when the key interest rate has reached or is very close to the neutral level, i.e. when it neither restricts nor stimulates the economy. Judging by current expectations, the market expects one or two more interest rate cuts. In other words, the key interest rate will reach 1.5-1.75 percent.