Monday 24 July 2017

Interest rate unchanged but summer hike likely

ECB president Jean Claude Trichet insisted the decision had 'absolutely' not been taken to protect economically fragile countries like Ireland. Photo: Getty Images
ECB president Jean Claude Trichet insisted the decision had 'absolutely' not been taken to protect economically fragile countries like Ireland. Photo: Getty Images

Laura Noonan in Helsinki and Charlie Weston

HARD-pressed homeowners face the prospect of increased mortgage repayments -- with interest rates expected to rise during the summer.

It comes despite a reprieve yesterday when the European Central Bank (ECB) held interest rates at 1.25pc and also indicated that a hike in June was also unlikely.

However, economists believe the next increase is set for July -- with the expected 0.25pc hike adding €45 to the monthly repayments on the average €300,000 mortgage.

And the ECB is still on track to push through another two rises this year after the July one, in a move that would mean rates going up four times this year.

Four rate rises would mean monthly repayments rising by €60 for every €100,000 borrowed.

Some 600,000 homeowners with trackers and variable rates will be impacted by higher rates.

Last month, the ECB raised eurozone rates by 0.25pc to 1.25pc, ending almost two years of record-low interest rates and beginning what economists expect to be a run of increases.

A rise of 0.25pc on a tracker or variable rate adds €15 to the monthly cost of repaying a €100,000 mortgage.

Chief economist with KBC Bank Austin Hughes said he expects another three rises in the main ECB rate before the end of the year.

Three more rises would mean a family with a €300,000 tracker mortgage would see their monthly repayments rise by €155 over the course of a full year.

Director of personal finance website MoneyCoach.ie, Frank Conway, said the ECB was set on a series of rate rises.

"The ECB let the interest rate genie out of the bottle in April and are unlikely to stop their anti-inflationary activity until the base rate reaches at least 2pc."

The decision to keep interest rates at 1.25pc was taken unanimously by the ECB's governing council, including Central Bank of Ireland chief Patrick Honohan, at a meeting in Helsinki yesterday.

ECB president Jean Claude Trichet insisted the decision had "absolutely" not been taken to protect economically fragile countries like Ireland.

Rise

Market observers are expecting further hikes later this year, but some believe a rate rise next month is now less likely after Mr Trichet appeared to soften his stance on the inflation outlook.

News that interest rates will remain close to record lows will be particularly welcome in struggling eurozone countries like Ireland, Portugal and Greece, but Mr Trichet strongly rejected suggestions the ECB's decision reflected concerns about the "fragility" of some states.

"Absolutely not -- we are responsible for price stability in the euro area as a whole," he said.

The ECB boss also said that the current situation, where some of the eurozone's economies were enjoying a "very encouraging level of growth" and others were "lagging behind", was not unusual.

The main inflation drivers were energy and commodity prices, Mr Trichet said.

Asked about the outlook for future rate rises, he said the council would "take our decision whenever we judge it appropriate".

Irish Independent

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