No ECB Christmas present for home-owners

Home-owners hoping for a last-minute Christmas boost were left disappointed this lunchtime, after the European Central Bank left interest rates at a record low of 0.25 per cent. Following last month's surprise decision to cut interest rates by a quarter of a percentage point, most analysts expected the Frankfurt-based bank to leave rates unchanged, despite no signs that the trend of low inflation across the euro zone is easing.

A persistently low inflation rate in the euro zone – in particular a sharp drop to a four year low of 0.7 per cent in October– prompted last month’s decision, which is understood to have been opposed by six governing council members. Inflation did increase last month, according to the flash estimate for November, but only to 0.9 per cent, still well below the ECB’s mandate to keep inflation close to but below 2 per cent.

Nonetheless, market watchers will be closely watching any signs of ECB’s intentions to engage in ‘non-conventional’ measures this afternoon , including more Long-term refinancing operations (LTRO) for banks, or an asset-buying programme. Figures published yesterday confirmed earlier estimates that the euro zone economy grew by a disappointing 0.1 per cent in the third quarter, compared to growth of 0.3 per cent in the second quarter of the year. Closely-watched manufacturing figures also showed a slowdown in manufacturing activity in the euro area. Concern about fragmentation across the euro zone, which is leading to higher borrowing costs for businesses in so-called ‘peripheral’ countries is also increasing pressure on the ECB to intervene in the banking system.

ECB president Mario Draghi said last month that staff projections due to be published today would give a clearer picture of how long the "prolonged period" of inflation predicted by the ECB would last. The macroeconomic projections give a key indication of ECB assessments of economic developments in the euro zone area.

Yesterday, ECB executive board member Yves Mersch said that details of capital requirements for next year's euro wide stress tests had not yet been decided, with the ECB due to publish further details at the end of next month. The results of the balance sheet assessments of AIB, Bank of Ireland and Permanent TSB which were announced earlier this week will feed into the euro wide tests.