The European Central Bank raises rates by a hawkish 0.5% despite banking turmoil
President Of Christine Central European Pic: (ecb) Lagarde, Ak/jm The Bank
The European Central Bank (ECB) remained hawkish today as it ploughed ahead with a 0.5% interest rate hike despite fears of a banking crisis fuelled further by the meltdown at Credit Suisse.
However, shares in Credit Suisse, which is one of Europe’s largest lenders, surged 20% on Thursday after the bank worth around €8bn was given a lifeline by the Swiss central bank and borrowed 50bn Swiss Francs (€51bn) from the regulator ahead of the latest interest rate hike.
This ECB hike represents the sixth rate increase in less than a year in an effort to drive down inflation. Accumulatively, the ECB has raised interest rates by 3.5% since last summer.
There are more than 700,000 residential mortgages in Ireland and around 200,000 of these are tracker customers which are the most exposed to the interest rate hikes enforced by the European Central Bank.
Brokers Ireland said this interest rate hike, on top of the rest, will lead to tracker customers with a €330,000 mortgage paying an extra €640 in monthly repayments.
Approximately 400,000 mortgage borrowers are on fixed rates, but over six in 10 are fixed for less than three years.
“Many of them will be exiting these fixed rates in the near future and will be coming out into a rising mortgage environment with no certainty around where rates are going to end up," said Rachel McGovern, director of financial services at Brokers Ireland which represents 1,225 broker firms.
Central Bank of Ireland data from earlier this year showed fixed-rate mortgages now constitute the majority of new agreements.
The latest hike comes as Irish inflation unexpectedly jumped from 7.8% in January to 8.5% in February, according to new Central Statistics Office figures.
The jump was driven by price increases in electricity, gas, solid and liquid fuels.
ECB staff said they now see inflation averaging 5.3% in 2023, 2.9% in 2024 and 2.1% in 2025 in the eurozone.
Many market observers were sceptical about whether the ECB would follow through with plans set out last month to raise rates again by 0.5% in March or deliver a dovish 0.25% increase instead after shares in Credit Suisse, which has a balance sheet worth as much as €540bn, tumbled by 30% earlier in the week.
The drop happened after the biggest shareholder in Credit Suisse, Saudi National Bank, suggested it will not increase investment because of regulatory restrictions.