ECB holds its rate for now but further cut expected
THE European Central Bank has left its key interest rate on hold at 0.75pc. However, economists say the door has been left open for a further reduction as early as next month.
That would put extreme pressure on those banks with high variable rates to reduce the costs of these mortgages.
An autumn cut would be the fourth in less than a year and would see repayments on a €200,000 mortgage falling by a further €30 a month.
Dermot O'Leary, an economist with Goodbody Stockbrokers, said he was still expecting a fourth reduction as part of the plan by the ECB to save the euro and stimulate the economies of the eurozone.
"There is a strong likelihood of another 0.25pc cut in rates, possibly as early as next month," he said.
Austin Hughes of KBC Bank said: "There is a strong prospect of a cut in September."
Money markets are signalling that the ECB will cut borrowing costs within the next three months. It last cut its main rate on July 5 to 0.75pc.
However, the interest rate that banks charge each other for lending, known as the Euribor rate, has fallen to 0.37pc, well below the rate that the ECB charges banks for funding.
The 400,000 homeowners with tracker mortgages automatically benefit from ECB rate reductions. The three reductions in the past 10 months have seen repayments on every €100,000 fall by €45 a month.
But the 250,000 people with variable rate mortgages have not all been so lucky.
Only Ulster Bank, Permanent TSB, Halifax/Bank of Scotland, and Irish Nationwide (now Irish Bank Resolution Corporation) cut their variable rates in July.
EBS, Bank of Ireland, National Irish Bank and KBC Bank have so far not passed on last month's ECB rate cut, while AIB increased its variable rate by 0.5pc.