The European Central Bank has shaved a further 0.25 per cent from its main lending rate to leave it at 3 per cent following yesterday’s December meeting. This is the fourth cut since last July and underlines the growing array of threats facing the eurozone.
However, the ECB’s decision is good news for the estimated 127,000 Irish people with tracker mortgages. Following a period of steep rises between 2022 and earlier this year, the interest rate on trackers reached over 4 per cent last June. Following the latest cut, the rate will average 3.1 per cent. Over 700,000 mortgage holders are either on fixed-rate or variable-rate mortgages and will be largely unaffected by the latest move.
However, the rate cut is not such good news for savers. For a decade leading up to 2022 Irish depositors got a minimal return on their savings as the main ECB rate was at 0 per cent. From 2022, the returns on deposits started to rise as monetary policy tightened. At the end of October, there were € 159.1bn in deposits held by Irish households. But the outlook is once again bleak. It is expected that the ECB could cut rates to 1.75 per cent over the next year.
Overall though, the backdrop to yesterday’s rate cut is deeply concerning. French borrowing costs have soared due to political instability following the collapse of Michel Barnier’s short-lived premiership last week. The German economy is teetering on the brink of recession amid ongoing political instability. Far-right parties are making gains across many member states and there is a looming threat of a trade war once Donald Trump takes over the White House.
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In September, Mario Draghi, the former president of the ECB, released a report on boosting EU competitiveness. He called for a series of far-reaching reforms and annual investment of €700bn to put the EU on a competitive footing with China and the US.
So far little action has been taken, despite repeated warnings from the ECB. The bank’s latest cut and dovish outlook should act as a wake-up call for all member states, including Ireland.
