Interest rates are heading down. But will your mortgage rate fall?
Smart Money: Unexpectedly, EU and US rates may decline again
ECB governor Mario Draghi this week sounded a clear alarm bell about the state of the euro zone economy. Photograph: AFP
What can the ECB do about interest rates? And what would that mean for your mortgage?
The ECB’s official interest rates are already at zero – or lower. Yet this week Mario Draghi, the European Central Bank president, hinted they may fall further, while US rates may also be heading downwards. This is a complete reversal from what was expected earlier this year. But how on earth can the ECB cut rates that are already at rock bottom? And what does it mean for Irish borrowers – and for the economy?
1. What just happened?
We may well look back on this week as a key turning point. Mario Draghi, coming towards the end of his term, used an ECB conference in Sintra in Portugal to send out a clear message to the financial markets. The ECB is uncomfortable with the economic data and particularly inflation. The euro zone inflation rate fell back to 1.2 per cent in May, with little sign of an increase towards the ECB target of 2 per cent.