Mortgage cut on hold as bank stays its hand on rate lowering
HOPES of an imminent fall in mortgage costs were dashed yesterday after the European Central Bank's governing council rejected calls from some of its members to cut interest rates.
But outgoing ECB president Jean Claude Trichet hinted that relief may be on the way for homeowners over the medium term as Europe's economy cools and inflation rates fall.
Yesterday's decision follows weeks of speculation that the ECB might be preparing to reverse tack on the two interest rate hikes earlier in the year, as Europe's economy flounders.
Those hopes were dampened last weekend when figures showed higher than expected inflation across the eurozone, a trend that the ECB believes would be made even worse if interest rates were cut.
Mr Trichet yesterday said that inflation remains "elevated" with "incoming information" confirming the ECB's "view that inflation is likely to stay above 2pc over the months ahead, but to decline thereafter".
The ECB's mandate is to keep inflation "close to but below" 2pc; Mr Trichet's comments yesterday suggest that rates won't be cut in the "months ahead" but may be cut once inflation begins to decline.
Crucially, the ECB boss also revealed that yesterday's decision not to changes rates was arrived at by "consensus", not unanimously, as was the case when the bank kept rates unchanged in September.
Decisions are described as being taken by "consensus" if those in the minority position accept that they are in a minority and do not push the issue to an actual vote.
"There has been a discussion of the pros and cons of decreasing rates, as well as the pros and cons of maintaining rates where they are," Mr Trichet confirmed yesterday.
Chief economist at KBC Bank Austin Hughes said it was still likely there would be a rate cut before Christmas.
A cut would benefit 400,000 people on tracker mortgages, with pressure then coming on lenders to pass on any rate cut to variable mortgage holders.
Every 0.25pc cut will reduce monthly repayments by €15 on every €100,000 borrowed.