Bank chief has thrown borrowers a lifeline
Published 05/04/2013 | 05:00
PRESIDENT of the European Central Bank Mario Draghi was at pains to stress that he never "pre-commits" himself to an interest rate cut.
But for anyone listening to him speaking in Frankfurt it was pretty obvious that he is lining up the ECB for a new rate cut.
All the old code words were there, and Mr Draghi revealed there had been a long discussion on eurozone rates when the central bankers from around Europe met earlier.
So anyone with a tracker may well have reason to cheer the Italian next month. And if a rate cut does not come in May, it looks like a cert in June.
The eurozone rate is now at a record low of 0.75pc. That sounds incredibly low, but official interest rates are even lower in Britain, Japan and the US.
Another cut in ECB rates would push the average tracker rate down to around 1.75pc, levels unthinkable when the ECB hiked its key rate to a high of 4.25pc as recently as 2008.
Economist with Ulster Bank Simon Barry is one of those who listened to the 'ECB speak' trotted out in Frankfurt yesterday and translated it into a rate cut as early as next month.
The economist said the fact that Mr Draghi was now "closely monitoring" how the economy is evolving "in the coming weeks" was a clear indication that a near-term rate cut is now a live possibility.
We will never know for certain, but one would imagine that moves to cut rates are being encouraged by our own Prof Patrick Honohan, Governor of the Central Bank.
Mr Honohan is only too painfully aware of the mortgage crisis in this country, with almost one-in-four mortgage accounts either in some form of arrears or on reduced payments.
A rate cut would help struggling mortgage holders on trackers, and no new variable rate rise would be of some assistance for those on variable rates who are struggling to meet their payments.
Some 375,000 people have tracker rates. Then there are another 300,000 on variables. These are people who rightly feel they have been singled out for harsh treatment during the downturn as banks have repeatedly increased this rate.
Our banks that are biting at the bit to raise variable rates again would be frustrated in their endeavours by a new reduction from Mr Draghi.
Many of the homeowners with variables are thought to be the ones most likely to be in arrears. Another rise in variable rates would be a disaster for a country already suffering one of the most severe mortgage arrears crisis in the Western world. Banks won't cut variable rates, but if they don't increase them either then the banks will benefit from lower wholesale borrowing costs.
And that will remove another excuse for the banks that have so far failed to offer proper long-term solutions to those who can't meet their current repayments.