^{Our interest rate forecast is a result of internal discussions in which we discuss interest rate forecasts of the major banks. We pass on our opinion on this page as a suggestion for your considerations. Please note that an examination of all economic forecasting models used to date found that no model was able to predict the economic future.}

The ECB's easing policy, which has been ongoing since 2009, is continuing this year. The ECB is keeping interest rates low across all maturities in the capital market. In December, the bond purchase programme was expanded and extended until March 2022. The very favourable refinancing programme for banks, with interest rates of up to -1.0%, was extended until summer 2021.

In the wake of the pandemic, additional fiscal spending programmes were launched. The debt of public budgets is thus increasing significantly. Due to the delayed approval of the EU budget, the aid from the European Union will only reach the economy in the course of 2021.

In the forecasts we have evaluated, a strong economic recovery is expected in the second half of the year with the end of the second Corona wave (probably in spring 2021). Private savings have grown strongly as a result of the lockdown. With the end of the pandemic, high savings, high financial aid from the EU, the federal government and the states meet the ECB's comprehensive easing.  The level of economic activity before the pandemic could thus be reached by the end of 2021 or early 2022. Due to the prevailing uncertainty about the development of the pandemic and the availability of vaccines and medicines, the forecasts are certainly exceptional and burdened by many assumptions about the global course. It also remains to be seen how the number of insolvencies will develop in the coming months and how strongly employment will decline as a result.

Inflation rates in the EURO countries could rise to 1.6 - 2.0 %. This is probably also what the ECB is aiming for. In the current crisis, inflation rates should not be allowed to remain at too low a level.

This year, the ECB will discuss its stance on inflation targets, among other things. There is a possibility that, as in the USA, an overachievement of the inflation target of 2% could be accepted.

Today, only Greek and Italian government bonds still yield a positive interest rate for 10-year fixed-interest periods. The ECB's high level of purchase programs is pushing the interest rate level and the spreads to German bonds to an extremely low level - this policy cannot last.

It must be assumed that the ECB will prepare the markets for a withdrawal of the extreme monetary policy in its communication in the second half of 2021 or early 2022.

Long-term 10-year interest rates could therefore rise by 0.3% to 0.5% in the second half of 2021 compared to today's levels. The 10-year swap rate could be in positive territory again at the end of 2021 (for the last time on 09.04.2020). It currently stands at -0.27% (as of 05.01.2021).

There won't be a "market" for bonds by then. Only when the ECB starts to reduce its bond holdings in 2023 the normal market effects will start to emerge. What remains open is what interest rate insurance companies and pension funds will expect then.

Should you consider early funding of loans in this scenario? If the forecasts are correct: yes, then you should enter into an interest rate lock-up of 10 or more years for your property financing. The cost of a one-year forward is around 20-25 basis points. This is slightly cheaper than the expected rise in interest rates. We do not see a further decline in interest rates, i.e. a chance of even lower interest rates, outside the daily fluctuations of approx. 5 basis points in any of the interest rate forecasts we have evaluated.

Berlin, 05.01.2021

Asger Nielsen