ECB rate cut 'will provide €650m boost to economy'
Experts predict fall in borrowing costs
Published 09/10/2011 | 05:00
Almost €650m is set to flood back into the Irish economy over the next year when European interest rate cuts kick in, top stockbrokers believe.
This €650m will come as a much needed boost to our economy, which is facing another round of tough austerity measures in December's budget.
Although outgoing European Central Bank boss Jean-Claude Trichet did not cut interest rates at last Thursday's ECB meeting, he hinted that relief is on the cards for struggling homeowners.
Most economists and stockbrokers expect between two and three interest rate cuts over the next year.
Dolmen Stockbrokers expects the ECB to cut its interest rate from 1.5 to 0.75 per cent, with the first rate cut to kick in in January or February.
Each 0.25 of a percentage point cut will put €137.4m back into the pockets of Irish homeowners on tracker mortgages, according to Oliver Gilvarry, head of research with Dolmen.
If the ECB rate were therefore cut from 1.5 to 0.75 per cent, tracker customers would be about €412m better off.
If the full benefit of such cuts were also passed on to standard variable mortgages, these borrowers would be more than €231m better off, said Mr Gilvarry.
This would put €644m back in to the pockets of Irish homeowners.
Dolmen expects economic growth to reach 1.1 per cent in 2012 -- which is below average forecasts.
"There are a number of tailwinds that will offset that weak growth, including ECB rate cuts -- as long as they're introduced early enough next year, and the cut in the interest rate on our bailout loans," said Mr Gilvarry. Merrion Capital and Bloxham Stockbrokers expect the ECB to cut interest rates from 1.5 to one per cent over the next year, with the first rate cut falling as early as December.
"After the cuts, the ECB will keep rates on hold until 2013," said Alan McQuaid, chief economist with Bloxham Stockbrokers. "This will boost consumer confidence and bring inflation down.
"Against that, however, interest rate cuts could come at the same time as more Budget austerity so consumers may not be much better off."
Sunday Indo Business