Interest rates unlikely to rise until end of next year as ECB keeps them at 1pc
Friday July 03 2009
INTEREST rates in the eurozone are unlikely to change for some time, the president of the European Central Bank, Jean-Claude Trichet, said yesterday.
The ECB boss also played down the risk of both deflation and inflation rising above the target it has set.
"The current rates remain appropriate," he said after the ECB met yesterday and decided to keep rates at a record low of 1pc adding that and the euro region's economy will start to recover in the middle of 2010.
His comments came after eurozone consumer prices fell 0.1pc year-on-year in June, the first time the harmonised index has dropped since the euro's launch in 1999. But Mr Trichet dismissed the likelihood of serious deflation in the eurozone, and also played down the chance that inflation could quickly rise above the ECB's 2pc ceiling.
"We expect the current episode of extremely low or negative inflation rates to be shortlived and price stability to be maintained over the medium term," he told a news conference yesterday. Mr Trichet predicted a slow end to the eurozone recession next year.
"Economic activity over the remainder of this year is likely to remain weak but should decline less strongly than was the case in the first quarter of 2009," he added.
"After a phase of stabilisation, a gradual recovery with positive quarterly growth rates is expected by mid 2010."
Economist with Ulster Bank Simon Barry interpreted the comments of the ECB boss as meaning there will not be a rate hike until the end of 2010.
People on variable and tracker mortgages, which move in line with ECB rates, have seen monthly repayments fall as much as €500 after seven cuts in interest rates since last October.
On hold
"Overall, the ECB is very much on hold. Another rate cut looks like a low probability scenario to us. The next move in official interest rates is more than likely going to be a hike," Mr Barry said.
Kevin McNerney, director of The Mortgage Finance Company, a mortgage brokerage, said rates were unlikely to go up for some time to come.
"Obviously with rates currently at their lowest level there is really only one way they can go from here, up. However, that upward trend could be some months away, possibly even the end of next year, and the chance of there being a further cut before the increases start is very real."
KBC Bank economist Austin Hughes noted that the ECB has not entirely ruled out the possibility of further rate cuts.
But he stressed that this was a remote possibility. Rates, Mr Hughes said, were unlikely to rise before second half of 2010.
"We do not see any significant prospect of a near-term ECB policy move."
- Charlie Weston Personal Finance Editor
