Thursday 23 February 2017

No rate cut expected as ECB chief 'takes a breather'

Charlie Weston Personal Finance Editor

European Central Bank president Mario Draghi
European Central Bank president Mario Draghi

Homeowners are facing disappointment with another cut in mortgage interest rates likely to be postponed.

The European Central Bank will meet later this week and economists are predicting that interest rates will not be cut.

Mortgage holders received a boost when rates dropped in November and December, and another cut had been expected this month as inflation grew in the eurozone.

But experts now say the ECB may hold off until February or March before it cuts again from the present level of 1pc.

Every 0.25pc cut in ECB rates reduces payments on an average €200,000 tracker mortgage by €30 a month.

Economist at KBC Bank Austin Hughes and Bloxham's Alan McQuaid said yesterday they expect central bankers to wait a month or two before cutting rates again.

Mr McQuaid said the ECB was anxious to monitor the impact of December's reduction in rates before moving again.

And a survey of 51 economists across Europe conducted by the Bloomberg news agency also found that most expect rates to stay at 1pc this month.

But the good news for homeowners is that by the middle of the year the ECB will reduce its key rate to a record low of 0.5pc, according to economists at US banks Merrill Lynch, Citigroup, JPMorgan Chase and Britain's Barclays Capital.

This week's meeting will be the third of the ECB headed by new president Mario Draghi.

In his first two meetings, Mr Draghi announced his arrival with two separate quarter-point cuts, surprising ECB experts.

Frank Conway of personal finance site MoneyCoach.ie said Mr Draghi's actions up to now suggested he was as concerned about economic growth as he was about inflation control.

This represented a departure from the bank's core philosophy, which had previously been about controlling inflation.

"However, now that he has arrived with a bang, conventional wisdom suggests that Mr Draghi may take a little breather to assess market conditions before announcing any further reductions," Mr Conway said.

Any further reduction to interest rates would be a massive boost to the more than 400,000 homeowners on tracker mortgages, who automatically benefit from ECB rate cuts.

Another 255,000 with variable rates will be hoping their lender passes on any cut.

A cut would bring relief to most Irish mortgage holders, as eight out of 10 are either on trackers or variable rates.

Irish Independent

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