This reflects that the European economy is in good shape and that the global economy, too, is expanding at a brisk pace. Market participants, bolstered by the current growth forecasts, are expecting interest rates to slowly start picking up again. And not only are market participants optimistic, the range of expectations has also narrowed down.
Yet, this optimism and convergence of expectations may harbor risks for financial stability.1 Assuming that the current outlook will be sustained, risks to financial stability will be limited. A gradual upturn in interest rates would strengthen the stability of the financial system. Banks may see their interest margins recover – in particular if interest rates stay out of negative territory.