Hopes growing of pre-Christmas interest rate cut for homeowners
Published 01/11/2011 | 05:00
THE prospect of an interest rate reduction before Christmas moved closer yesterday after a survey of European economists concluded that a cut was imminent.
A new boss takes over at the European Central Bank today prompting expectations of a rate reduction.
And pressure for a cut mounted after top international think tank, the Organisation for Economic Co-operation (OECD), called for a decrease in eurozone rates.
The Paris-based OECD said yesterday interest rates should be reduced to boost growth in the eurozone.
European Central Bank governors are due to meet this week with expectations they may indicate a rate cut will be implemented before Christmas.
And regulator and deputy Central Bank governor Matthew Elderfield has called for 200,000 homeowners with variable rates to have an ECB rate cut passed on to them.
Now the OECD has added to the calls for a rate cut, to stave off what it fears will be "patches of negative growth" in the eurozone area unless more is done to stimulate growth.
"In the advanced G20 economies, interest rates should remain on hold or, where possible, be reduced, notably in the eurozone area," the thinktank said.
In a Reuters news agency poll of 70 economists across Europe, around two-thirds predicted a rate cut by December and 11 said it would happen this Thursday, when the ECB meets.
Seven of the economists said the bank would wait until next year and 16 that the bank would not cut rates.
Some ECB governing council members wanted to cut rates last month, while others think they can stay at 1.5pc for now.
During the darkest hours of the financial crisis, the ECB lowered its rates to 1pc, keeping them higher than the 0.5pc in Britain and the close-to-zero approach taken in the United States and Japan.
A cut would benefit 400,000 people on tracker mortgages here, as the rates on these home loans have to automatically change when ECB rates change. An ECB cut would also mean pressure would come on lenders to pass on any cut to more than 200,000 Irish homeowners who have variable mortgages.
Every 0.25pc cut will reduce monthly repayments by €15 on every €100,000 borrowed.
Last month, Mr Elderfield got tough with lenders and told them to stop hiking variable rates. He also indicated he wants lenders to cut variable rates when the ECB lowers eurozone rates.
Lenders have repeatedly pushed up variable rates since 2009 with Permanent TSB now charging some customers 6pc.
Thursday's ECB meeting will be the first chaired by Mario Draghi, who takes over the ECB presidency today after six years at the helm of the Bank of Italy.