Surprise as Trichet hints at possible early rise in interest rates
Published 19/11/2010 | 05:00
THE head of the European Central Bank (ECB) signalled yesterday that eurozone interest rates could rise sooner than many market watchers expect.
Markets had not been expecting an interest rate rise until the end of next year, with some predicting no rise until early 2012.
A rise in interest rates would put pressure on households, with an estimated 600,000 mortgage holders vulnerable to higher interest rates.
This is made up of an estimated 350,000 homeowners who have tracker mortgages, which automatically rise when interest rates rise.
Another 250,000 people are on standard variable rate mortgages, which rise when the ECB raises rates and at other times that banks want to push up rates.
ECB president Jean-Claude Trichet said the bank could raise interest rates before withdrawing all of its non-standard policy measures, such as providing unlimited funding for banks at low interest rates.
"We consider that we can determine standard and non-standard measures largely independently," Mr Trichet was reported by Bloomberg to have said in Frankfurt yesterday.
"We consider that we are not bound to unwind non-standard measures before considering interest-rate increases; we could do one or the other or both."
The ECB has held its benchmark interest rate at a record low of 1pc since May 2009 to help the eurozone economy through the global financial slump.
KBC Bank economist Austin Hughes said Mr Trichet's comments were a warning to everyone that interest rates might rise sooner than expected.
"This is a warning. The ECB is trying to disabuse the market of any sense rates will not rise," Mr Hughes said.
Director of the Irish Mortgage Corporation Frank Conway said Irish mortgage holders were especially sensitive to rising mortgage rates by both the ECB and individual banks.
"Many standard variable rate mortgage holders in Ireland have already suffered a series of rate increases in recent months which has resulted in a continued deterioration on mortgage arrears in this country."