Friday 23 February 2018

No new interest rate cut expected as ECB governing council meets

Mario Draghi: money markets don’t expect a reduction yet
Mario Draghi: money markets don’t expect a reduction yet

Charlie Weston Personal Finance Editor

THE interest rate that banks charge each other for lending remained unchanged yesterday, indicating that a cut in European Central Bank rates is unlikely.

The governing council of the ECB meets today, amid expectations of an another reduction in rates at some stage in the next few months despite the key rate being at a record low of 0.5pc.

But the key Euribor interbank lending rate was unchanged at 0.2pc yesterday for the fifth day running.

Traders said this indicates that the money markets do not expect ECB president Mario Draghi and the rest of the governing council to introduce any new key lending rate reduction yet.

Last month's reduction in rates cut costs for 375,000 Irish homeowners with trackers. Repayments on a €200,000 mortgage come down by an average €30 a month.

It is a different story for variable rate customers; hikes in variables for EBS, AIB and Haven customers take effect from this week. And last week Danske Bank said it was putting up its variable rate by up to 1pc.

Other lenders have failed to pass on May's ECB cut to homeowners with variables.

Mr Draghi said on Monday that the currency bloc was on track for a "very gradual recovery" later this year driven by the ECB's loose monetary policy and demand from abroad.

But a poll by news agency Reuters of some 80 economists showed a majority expected the ECB will not cut either its deposit or main refinancing rates in the coming months.

And money markets have also ditched nearly all the bets they placed on the ECB cutting its overnight deposit rate below zero.

Far more likely is some ECB move on lending to small and medium-sized businesses.

The ECB has been looking at ways of boosting lending. Over recent months it has been in talks with the European Investment Bank about developing a securitisation model for SMEs.

The idea is that the EIB would be instrumental in setting up a securitisation model by pooling together SMEs' loans and creating a liquid market for these assets.

Mr Draghi said in China this week that the ECB would "continue to support macroeconomic performance by ensuring price stability in the euro area".

Inflation across the eurozone rose to 1.4pc in May from 1.2pc in April, the first time in months that the reading has increased.

Irish Independent

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