Friday 24 February 2017

ECB will keep rates at 1pc for a year, say economists

Charlie Weston PERSONAL FINANCE EDITOR

The ECB has held its key rate at 1pc for 17 months now. Photo: Bloomberg News
The ECB has held its key rate at 1pc for 17 months now. Photo: Bloomberg News

THE European Central Bank (ECB) will keep interest rates at a record low of 1pc for at least another year, a survey of 79 economists shows.

Any rise in rates will not be until the end of 2010, with a 0.25pc rise likely, the survey by economists across Europe conducted by Reuters adds.

The ECB has held its key rate at 1pc for 17 months now.

Some 400,000 homeowners on tracker mortgages are benefiting from the record low rates. Some people have mortgage rates as low as 1.5pc as their tracker rate has been set at 0.5pc above the ECB rate.

Trackers involve a contractual promise that rates will always be a set at a percentage over the ECB rate. Most trackers are set at 1pc to 1.5pc above the ECB rate, meaning that these householders are paying a rate of 2pc or 2.5pc on their mortgage.

This compares with standard variable rates that average around 4pc. Many of those on tracker rates are paying up to €200 less a month than a householder who borrowed the same amount of money but has a standard variable rate.

Standard variable rates can rise at any time, and already have been hiked up three times lately by lenders.

The ECB is set to meet again on Thursday, but is due to leave rates on hold for the 17th month in a row as it battles to revitalise a struggling eurozone and bring inflation back up to target.

None of the 79 economists polled said the ECB would shift rates from 1pc even before next April, with forecasters giving only a small chance of a rate hike by the end of this year.



Rise

The poll suggests the ECB will not begin hiking rates until next October at the earliest. And ECB rates would rise by 0.25pc to 1.25pc in the final three months of 2011 and then by an additional 0.25pc each quarter to the end of June 2012.

One year ago, just as the eurozone was escaping from its deepest recession in post-war history, analysts saw a rate hike by the end of 2010 as a foregone conclusion amid expectations for a quickening economic recovery.

But most economists expect eurozone growth to slow to a crawl over coming quarters as austerity packages begin to bite, though the chances of the eurozone slipping back into recession remain slim.

Worryingly for policymakers, recent data has highlighted a two-speed recovery in Europe, with the largest eurozone economies, Germany and France, performing far better than struggling peripheral countries like Greece and Ireland.

Irish Independent

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