In the midst of a potentially deepening economic downturn in the euro zone, the European Central Bank (ECB) took its third move to lower interest rates this year, marking the second consecutive meeting to make such a decision. On Thursday, the critical deposit rate was sliced by 25 basis points reducing it to 3.25 per cent. This decision had been eagerly anticipated by the market.
In an explanatory statement released by the ECB, it was confirmed that the deflation process was progressing as expected, as borne out by current inflation data. This latest slash in interest rate will provide immediate relief to a multitude of tracker mortgage holders in Ireland. The reduction means that for each €100,000 owed, there will be a decrease in monthly payments by about €13, saving a typical tracker customer with a balance of €200,000 over a decade or a decade and a half, nearly €25 monthly.
In addition, tracker mortgage holders had the edge last month due to a technical rate adjustment, which lessened the discrepancy between the ECB’s primary refinancing rate and its deposit rate. As recently revised data showed a 1.7 per cent inflation rate for the previous month in the euro zone— short of the ECB’s 2 per cent target— focus has shifted to the sluggish performance of the eurozone economy and if there will be an increase in the tempo of interest rate cuts by Frankfurt to bolster commercial activity.
As per the ECB’s projections released last month, there is the expectation for a mere 0.2 per cent growth in the third quarter. Several market analysts are predicting that the ECB will maintain rate reduction at every meeting until March of the following year to counteract the slowdown.
With the decrease in growth impetus and the tempering of inflation, expectations for the ECB to slice rates by 25 basis points at every one of the forthcoming four meetings have been set, reported Reinhard Cluse, an economist at UBS. Markets will now shift their focus to any indication from ECB president, Christine Lagarde, of a further easing of rates in her post-meeting remarks.
As per the recent data from Eurostat published prior to the ECB’s decision on rates, there was an unexpected dip in inflation across the euro zone in September. Consumer price growth cooled to 1.7 per cent from 2.2 per cent in the previous month, lower than the initial flash estimate of 1.8 per cent disclosed earlier in the month. Ireland, according to the harmonised index of consumer prices (HICP), recorded the lowest inflation rate in the euro zone at a zero per cent, a fall from the earlier estimate of 0.2 per cent.