Wednesday 22 October 2014

Deflation risk spurs ECB to keep key rates low

Published 10/01/2014 | 02:30

European Central Bank (ECB) President Mario Draghi arrives to testify before the European Parliament's Economic and Monetary Affairs Committee in Brussels December 16, 2013. REUTERS/Francois Lenoir (BELGIUM - Tags: POLITICS BUSINESS)
European Central Bank (ECB) President Mario Draghi

THE European Central Bank has kept the door open for further cuts in interest rates after keeping them unchanged at historic lows.

ECB President Mario Draghi warned the eurozone would continue in a prolonged period of low inflation, ensuring interest rates remain at the same rate or lower for the foreseeable future.

A further cut beyond the current 0.25pc would be good news for the thousands of Irish customers on tracker mortgages.

"We firmly reiterate our forward guidance that we continue to expect the key ECB interest rates to remain at present or lower levels for an extended period of time," Mr Draghi said.

The ECB surprised the markets when it reduced its core interest rate to the current lows in its monthly review last November.

About 375,000 holders of tracker mortgages gained from that. It meant a saving of about €30 a month for a mortgage-holder with a €250,000 loan.

That cut was prompted by lower-than-expected inflation.

Now the latest figures on eurozone inflation have shown that price rises are so muted that there is a risk of damaging deflation taking hold.

Ken Murray, Association of Expert Mortgage Advisers (AEMA) director, said recent rate cuts have only been enjoyed by those on trackers -- all other standard variable rate mortgage-holders have not seen any real change.

"I believe looking at 2014 mortgage-holders across the board would be hoping now for some sense of stability in rates -- the comfort of knowing that they can look to the medium term with some degree of certainty that rates aren't going to fluctuate upwards," he said.

John McCartney, economist and director of research at Savills Ireland, said the reassertion of ECB's commitment to maintain low interest rates will help to underpin stability.

"Notwithstanding the fact that mortgage credit remains tight, the prospect of low rates for the foreseeable future should also attract more home-buyers to the market," he said.

"This will add to the existing strong demand for residential property in Dublin and its surrounding counties, making it even more imperative that new supply is brought onstream."

Irish Independent

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