ECB on course to start cutting interest rates from June

The European Central Bank is on course to start cutting interest rates in June.

Rates could be cut four times before the end of the year.

Some commentators expect the so-called refinancing rate to come down from 4.5pc at present to 3pc by the end of the year.

This would provide a huge boost the 180,000 homeowners on trackers, those on variable rates, people trapped with vulture funds that will not let them fix their mortgage rate, and 70,000 borrowers who are coming off fixed rates this year.

It is expected that the ECB will cut rates by 0.25 percentage points in June.

Every cut of that size will knock €15 off the monthly repayments on typical tracker. Most of those on trackers still owe around €100,000 and have around 15 years left to pay.

Inflation in the Eurozone is coming close to the ECB’s target of 2pc, allowing reduce some of the 10 interest rate hikes it has imposed over the last year and a half.

The ECB said today that incoming information has broadly confirmed its previous inflation assessment while wage growth was moderating and firms were absorbing more of the labour cost increases via their profit margins.

Nevertheless, domestic price pressures are strong and are keeping services price inflation high, the ECB said in a statement.

ECB policymakers have long pointed to a June rate cut, a de facto pre-commitment according to financial markets, and walking back from that would damage the central bank’s credibility.

And tracker mortgage holders are in line for a separate unexpected boost in September when a technical change will see the ECB rate their mortgages are priced off coming down by 0.35 percentage points.

ECB on course to start cutting interest rates from June | Irish Independent

The move could save a typical tracker holder around €250 a year for every €100,000 left to pay.

The change being implemented will see the ECB interest rate that trackers are priced off come down by 0.35 percentage from September.

This is in addition to any ECB rate cut announcements.

The change being implemented will see the ECB interest rate that trackers are priced off come down by 0.35 percentage from September.

Tracker contracts are set up so that the rate paid by the borrower is at a set margin over the ECB refinancing rate.

The margin is usually between 1 percentage point and 1.25 percentage points above the ECB refinance rate.

As the refinancing rate is currently 4.5pc it means most tracker holders are paying 5.5pc to 5.75pc in interest.

However, the ECB plans to lower the refinancing rate to bring it more into line with its deposit rate.

The ECB deposit rate is 4pc.

Source: Charlie Weston, Irish Independent, 11th April 2024