Mortgage holders face rate rise prospect
Published 22/03/2011 | 07:37
HOMEOWNERS were last night again facing the prospect of an interest rake hike next month.
It was hoped the European Central Bank (ECB) would defer an increase in interest rates because of economic uncertainty caused by Japan's earthquake, unrest in the Middle East and conflict in Libya.
But ECB President Jean-Claude Trichet said yesterday he had nothing further to add the comments made last month, when he shocked financial markets by announcing that an April rate rise was very likely in an attempt to fight inflation.
A rise of 0.25pc in ECB rates will be the first rise since July 2008 and would add around €45 to the monthly repayments on a €300,000 mortgage.
Central Bank of Luxembourg Governor Yves Mersch and ECB board member Gertrude Tumpel-Gugerell echoed his comments and gave strong signals that the ECB was preparing for an immediate interest rate hike, to tackle the wave of inflation that could be triggered by rising commodity and oil prices.
Both said "strong vigilance" was necessary to keep a lid on inflation.
This is a phrase that the ECB has used in the past to signal a rise in interest rates.
And a similar phrase was used last month by Mr Trichet to signal the forthcoming rate increase.
Inflation across the 17-member euro bloc "is on the rise", Mr. Trichet said.
Annual inflation is 2.4pc, well above the ECB's target of just below 2pc.
Mr Trichet said it was "crucial" at this stage to ensure that the recent rise in inflation did not translate into "second round effects" such as increased prices or higher wages.
A eurozone rate rise in April would impact on 80pc of mortgage holders.