The European Central Bank (ECB) cut interest rates again today by 0.25 per cent in a bid to help the weakening economy as the threat of inflation continues to diminish, Irish Examiner reports.
The cut, announced after the ECB’s final meeting of the year, means that interest rates have already been cut four times since June, which is good news for borrowers. There had been speculation that a 0.5 per cent rate cut was expected at this meeting, but this did not materialise.
A 0.25 per cent cut, which will have an immediate impact on tracker mortgage holders, would bring rates down to 3 per cent.
According to Dowling Financial broker and managing director Michael Dowling, the 0.25 per cent rate cut will see tracker mortgage repayments cut by €13 a month for every €100,000 of debt. He added:
“Mortgage repayments will have fallen by €52 per month on every €100,000 since June. The really good news for mortgage holders is that markets are pricing in a further 1% decrease in 2025 which will see mortgage repayments for tracker holders fall by a further €52 per month for every €100,000 owed.”
However, Mr Dowling said he did not see variable rates, which still fluctuate between 3.75% and 4.7%, falling. He noted:
“I expect fixed rates to fall to 3% for three and five year fixed options which will bring reductions of €85 to €125 per month on the average €300,0000 mortgage for new or switcher mortgage customers.”
In recent months, the debate around interest rate cuts has shifted to whether the ECB is easing its monetary policy fast enough to support the European economy, which is at risk of recession as well as political instability.
These problems could be exacerbated by a potential trade war with the US when President-elect Donald Trump takes office.
In a statement on its decision, the ECB explained that it believes core inflation in the eurozone will average 2.4 per cent this year and 2.1 per cent next year. For inflation excluding energy and food, the staff forecast an average of 2.9 per cent in 2024 and 2.3 per cent in 2025.
The ECB’s inflation target for the medium term is 2 per cent and eurozone inflation was estimated at 2.3 per cent in November. In Ireland, the consumer price index showed prices rose 1% in the year to the end of November. The ECB said:
“Staff now expect a slower economic recovery than in the September projections. Although growth picked up in the third quarter of this year, survey indicators suggest it has slowed in the current quarter. Staff see the economy growing by 0.7% in 2024, 1.1% in 2025, 1.4% in 2026 and 1.3% in 2027.”
The ECB said the economic recovery is underpinned by rising real incomes and increased investment by companies.
Over time, the gradually easing effects of restrictive monetary policy should support domestic demand growth.
