Hopes high for ECB rate cut next month
THE ECB is likely to cut the eurozone interest rate next month, economists predicted yesterday.
The reaction was due to the ECB leaving its key rates unchanged -- but not ruling out a move in a month's time.
Economists now forecast a cut in July to take the rate below 1pc, in a move that would directly benefit 400,000 tracker-mortgage holders.
Each 0.25pc cut in ECB rates means monthly savings of €15 for every €100,000 borrowed.
This means that a family with a €200,000 mortgage would save €360 a year if a new rate cut is made.
ECB president Mario Draghi said economic growth in the eurozone remained weak, with heightened uncertainty weighing on confidence and sentiment.
He did not give any clear signal of an imminent rate cut but said: "We are monitoring the data and stand ready to act."
Mr Draghi also revealed that some members of the governing council had argued for a rate cut yesterday when they met.
Asked about the decision not to cut rates yesterday, he said: "It was taken, I would say, by very broad consensus.
"A few members would have preferred to have a rate cut today. I'd say not many."
Economist with Goodbody Stockbrokers Dermot O'Leary said it was significant that some members of the ECB governing council were pushing for a rate cut.
Mr Draghi said in Frankfurt: "The economic outlook for the euro area is subject to increased downside risks relating in particular to a further increase in the tensions in several euro area financial markets and their potential spillover to the euro area real economy."
Although the ECB has not changed its projections for the economic outlook for the eurozone, Mr Draghi has admitted that some of the economic data issued lately was weak.
Mr O'Leary interpreted the remarks as holding out the prospect of reduction next month.
"There is still a strong possibility of a rate cut in July."
IMF managing director Christine Lagarde said in an interview published on Monday that it was "clear" the ECB had room for another rate cut.
And yesterday chief economist at Ulster Bank Capital Markets Brian Devine said it now looked increasingly likely that the ECB would cut rates in the coming months, possibly as soon as next month.
However, there are more than 255,000 households which have expensive variable mortgages -- and it depends on their banks whether any ECB cut would lead to a reduction in their mortgage interest rate.
However, last month Permanent TSB cut its rate by 0.5pc to 4.69pc after coming under sustained criticism from customers.
Lower mortgage rates will ease the pressure of mortgage arrears on householders. Some 116,000 mortgage holders are struggling to meet repayments on their home loans, according to the Central Bank.
Many of these will benefit from a new range of mortgage solutions to be shortly introduced by lenders.