ECB to keep interest rates at 2% amid inflation concerns
Molly O'Reilly
The European Central Bank (ECB) has kept its key interest rate at 2 per cent on Thursday.
At its March meeting the ECB warned that the war in Iran was clouding the outlook for growth and inflation in the euro zone.
Oil and gas prices have jumped since the US-Israeli attacks on Iran began, raising the risk that higher energy costs will drive up consumer.
Financial markets now expect euro zone inflation to climb close to 4% over the next year, then take years to return to the ECB's 2% target.
But for many ECB policymakers, the Iran war will revive memories of the surge in inflation that followed Russia's 2022 invasion of Ukraine, which the ECB initially wrote off as transitory.
Trevor Grant, chairperson of Irish Mortgage Advisors said that while the move was largely expected it will be a relief to existing and prospective borrowers.
He warned, however, that growing concerns over the ongoing conflict in the Middle East could force the ECB’s hand and prompt it to raise rates sooner than previously anticipated. "So, borrowers need to be mindful that there could be a limit to the amount of time that ECB rates will remain on pause, particularly against the backdrop of the current conflict in the Middle East."
Grant said: "We must remember too that competition and not the ECB is the main influence on home loan rates in Ireland. There is still plenty of competition out there amongst lenders for borrowers to take advantage of, with a number of lenders cutting their mortgage rates since the start of the year.
He said the upcoming sale of PTSB could also lead to lower mortgage rates for borrowers as a new owner of PTSB might decide to challenge the other banks and in turn trigger a mortgage price war."
Fiona McMahon, senior mortgage advisor at NFP Ireland said many households, particularly those on standard variable rates, could save hundreds or even thousands of euros a year by reassessing their mortgage.
If energy prices continue to rise and inflation expectations begin to move higher, the ECB may find itself in the uncomfortable position of having to raise interest rates again to protect price stability. - Reuters
