EIOPA published a RFR term structures report (here) on the calculation of the Ultimate Forward Rate (UFR) for 2022.
- For the euro, the applicable UFR as of as of 1 January 2022 will be 3.45%.
- The UFR is the sum of an expected real rate and an expected inflation rate.
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- The expected real rate is the same for all currencies. It is calculated as a simple average of the past real rates since 1961. The resulting expected real rate is 1.45%.
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- The expected inflation rate is currency-specific. It is based on the inflation target of central banks and can take the values 1%, 2%, 3% or 4%. The expected inflation rate remains unchanged for all currencies.
- Changes in the UFR are limited to 15 basis point increments annually,. In 2022, the calculated UFR (ie the UFR before the 15 basis point criteria is applied) will equal the applicable UFR (ie the UFR after the 15 basis point criteria is applied) for the first time. This indicates that the UFR should now start to stabilise although further decreases should be expected in the coming years.