Sunday 21 January 2018

Boost for homeowners as ECB cuts interest rate to 0.75pc – a record low reporters

HOMEOWNERS received a boost today as the European Central Bank cut its key interest rate by 0.25c to 0.75pc – a new record low.

The move should mean a cut on a typical tracker mortgage of €360 a year.

It will also benefits those on variable mortgages if their provider passes on the cut.

It is the first time the ECB has cut its main refinancing rate below 1pc and comes as policymakers are under immense pressure to stimulate the European economy.

Steady inflation and a slew of recent bad economic performance indicators, including signs of weakness in the area’s biggest economy Germany, paved the way for the cut.

Each 0.25pc cut in ECB rates means monthly savings of €15 for every €100,000 borrowed.

Many economists had predicted the cut ahead of today’s move.

European shares extended gains on the news and the euro fell.

Of 71 economists polled by Reuters, 48 had expected the bank to cut, most of them by 25 basis points, though some others forecast a larger decrease.

But stock gains were relinquished after ECB President Mario Draghi said the euro zone economy would recover only gradually, threatened by the debt problems of several of the bloc's members and banks' unwillingness to lend.

"The risks surrounding the economic outlook for the euro area continue to be on the downside," Mr Draghi told a news conference. "Beyond the short term, we expect the euro area economy to recover gradually, although with momentum dampened by a number of factors. In particular, tensions in some euro area sovereign debt markets and their impact on credit conditions."

The ECB's loosening of policy followed shortly after China and Britain did similar.

Mr Draghi said there was no coordination between the three.

In addition to cutting the main refinancing rate, the ECB also reduced its deposit rate, which acts as a floor for the money market, to zero from 0.25 pc.

This move could encourage banks to lend to each other rather than simply parking funds of up to €800bn back at the ECB every night, for which they will now get no return.

(Additional reporting Reuters)

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