The 12-month Euribor rose sharply on Friday, reaching 2.658 percent as markets reacted to the economic impact of the illegal US-Israeli war against Iran.

The benchmark rate, widely used for home loans in Finland and across Europe, increased by 0.134 percentage points from Thursday’s level of 2.524 percent. According to OP senior market economist Jari Hännikäinen, the move ranks as the 13th largest daily rise on record.

“Volatility is now intense,” Hännikäinen wrote on X.

The latest increase marks the highest level for the rate this year. It stood near 2.2 percent when the conflict began in late February, indicating a rapid shift in market expectations over a short period.

Analysts link the rise to growing concern over inflation. The European Central Bank kept its key interest rate unchanged at 2.0 percent on Thursday, but warned of rising price pressures linked to the conflict. Higher oil prices have fed into those concerns, increasing transport and energy costs across global markets.

The war has disrupted energy flows and driven crude oil prices above 100 dollars per barrel in recent weeks. The Strait of Hormuz, a key shipping route for oil and gas, has faced disruption, contributing to supply uncertainty.

The International Energy Agency has warned of a potential large-scale energy crisis. Its executive director, Fatih Birol, told the Financial Times that restoring normal oil and gas transport from the Gulf region could take up to six months. He added that markets and policymakers have underestimated the scale of the disruption.

Banks have begun to revise their outlook for eurozone interest rates. Reuters reported that J.P. Morgan, Morgan Stanley and Barclays now expect the European Central Bank to raise rates later this year. Earlier forecasts had pointed to a pause in rate changes.

Barclays and J.P. Morgan expect a rate increase as early as April, followed by another move in the summer. Morgan Stanley forecasts increases in June and September.

The Euribor serves as a key reference rate for mortgages. Data from the Bank of Finland shows that nearly 60 percent of new housing loans issued in January were tied to the 12-month Euribor.

Higher rates increase borrowing costs for households. The ECB uses its policy rate to control inflation, with higher rates aimed at slowing price growth.

HT