ECB cuts interest rates to 0.5%

ECB cuts interest rates to 0.5%

Extended weak economic activity and tame inflation persuaded the European Central Bank to cut interest rates to a new reocrd low of 0.5 per cent, ECB president Mario Draghi said today.

In the past month, confidence indicators have slumped, triggering fears of a delayed recovery in the euro zone.

“Weak economic sentiment has extended into the spring of this year,” Mr Draghi told a news conference. “Inflation expectations for the euro area continue to be firmly anchored…. our monetary policy stance will remain accommodative,” he said.

The rate cut, announced at lunchtime, should provide a shot in the arm for the European economy and will reduce repayments for tens of thousands of Irish people with tracker mortgages tied to the central bank’s rates.

For every quarter of a point the ECB lowers rates, the monthly cost of servicing a €100,000 tracker mortgage declines by about €15. This means that the average tracker mortgage holder with an outstanding loan of €300,000 will see monthly savings of €45 from the beginning of next month.

As a result of the move – the fourth such rate reduction in the last 18 months – a person with a €300,000 tracker mortgage will now pay about €180 a month less than they were paying in the autumn of 2011. This amounts to a total annual saving of more than €2,100.

The cut will be automatically be passed on to tracker mortgage holders but those with Standard Variable Rate (SVR) mortgages will have to wait for their individual banks to follow suit although such a move is unlikely as banks are using SVR customers pay for loss-making tracker ones.

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