- Deposit rate at 2.00% after 250 bps of cuts since June 2024.
- Inflation below target raises discussion of undershooting.
- Lagarde emphasized gradual approach to further easing.
How mortgage rates are set here
ECB Deposit Rate → Euribor → Variable Loans
The European Central Bank sets the deposit facility rate. Variable-rate mortgages in France are typically indexed to 3-month or 12-month Euribor, which tracks ECB policy closely. France has fewer variable mortgages than other Eurozone countries.
French OAT / Swap Curve → Lender Spreads → Fixed
Fixed-rate mortgages (dominant in France) are priced off French government bond (OAT) yields and interest rate swaps. Credit spreads and bank funding costs determine the final rate offered to borrowers.
Decision lens
Base Case
- ECB deposit rate at 2.00% after 250 bps of cuts since June 2024.
- Inflation undershooting may prompt further easing in 2026.
- Fixed mortgage rates in France have declined with lower yields.
- Political and fiscal uncertainty keep OAT-Bund spread elevated.
Faster Cuts If…
- Eurozone growth disappoints significantly, risking recession.
- Germany enters sustained economic contraction.
- Banking sector tightens credit, forcing ECB intervention.
- Global deflationary pressures intensify.
Higher-for-Longer If…
- Services inflation across Eurozone proves stickier than expected.
- Wage growth remains elevated in core economies.
- Energy prices spike due to geopolitical events.
- French fiscal trajectory worsens, widening sovereign spreads.
Signals to watch
- Eurozone HICP inflation (headline and core)
- ECB meeting decisions and staff projections
- French 10Y OAT yields and OAT-Bund spread
- Eurozone GDP and PMI indicators
- French budget and fiscal policy news
Scenario-based macro commentary, not financial advice.
Currency & FX Lens
USD/EURWhy it matters for borrowers
- FX → import prices → inflation: A weaker local currency raises import costs, pushing inflation higher.
- FX → central bank reaction function: Currency pressure can constrain rate cuts even when growth slows.
- Mortgage lens: FX → inflation → policy rate → variable rate; FX → risk premia/bond yields → fixed rate.
FX drivers to watch
- Interest rate differentials vs USD (Fed policy)
- Global risk sentiment (risk-on/risk-off flows)
- Trade policy developments and tariff uncertainty
- Trade balance and export demand
- Capital flows and fiscal outlook
- Linked to ECB (Eurosystem) policy rate → prime/base rate
- Adjusts relatively quickly when central bank moves
- Priced off government bond yields + lender spreads
- Can move independently of policy rate based on bond market expectations
Choosing Variable
When it tends to fit
- When rates are expected to decline over the term
- For borrowers comfortable with payment variability
- When starting rates are meaningfully lower than fixed
Main risks
- Payments rise if cuts are delayed or reversed
- Budget uncertainty during volatile periods
Choosing Fixed
When it tends to fit
- When prioritizing budget stability
- For risk-averse borrowers preferring predictability
- Long-term planning horizons
Main risks
- Opportunity cost if variable rates drop faster
- Break penalties if refinancing early
General guidance based on current regime. Not personalized financial advice.
| Date | Metric | Value | Δ | Source |
|---|---|---|---|---|
| Jan 07 | HICP (YoY) | 0.7% | -0.2% | Eurostat |
| Dec 15 | GDP (Q3) | 0.5% | +0.0% | INSEE |
| Dec 12 | ECB Rate | 2.00% | 0bps | ECB |
What this curve suggests
- The curve has a normal upward slope, typical of expansion.
- Long-term rates reflect moderate inflation expectations.
- Yield curve shape can change rapidly with policy shifts.
| Year | GDP | Debt/GDP | C/A | Savings | Budget | CPI |
|---|---|---|---|---|---|---|
| 2024 | $3.2T | 112% | -0.5% | 16% | -5.8% | 2.1% |
| 2023 | $3.1T | 110% | -0.7% | 17% | -5.5% | 4.9% |
| 2022 | $2.9T | 111% | -1.5% | 16% | -4.8% | 5.2% |
| 2021 | $2.8T | 113% | 0.4% | 21% | -6.5% | 1.6% |
| 2020 | $2.6T | 115% | -2.0% | 24% | -9.0% | 0.5% |
Data sourced from World Bank. This is a Tier B (3-sector) breakdown. Services includes all service industries (trade, finance, real estate, government, etc.). Industry includes manufacturing, mining, construction, and utilities. Agriculture includes farming, forestry, and fishing. More detailed industry breakdown may be available from INSEE (French national statistics).