European Central Bank is 'not thinking about pausing' hikes as rates increase again
Bank Probst) President Photo/michael Lagarde Christine (ap The Central Of European
The European Central Bank (ECB) is “not thinking about pausing” interest rate hikes following its eight increase in less than a year piling further pressure on hard pressed homeowners.
On Thursday, the ECB announced a further interest rate increase of 0.25% as it continues to grapple with sticky core inflation. Since July 2022, interest rates have now gone up by 4% with more expected over the summer and potentially into the autumn.
The announcement follows a cooling in the annual pace of inflation in Ireland, which fell to 5.4% in May. However, inflation across the eurozone remains at 6.1%.
Speaking following the rate increase announcement, Christine Lagarde, president of the ECB, said inflation has been coming down but it is “projected to remain too high for far too long” adding that they “stand ready” to adjust all of their instruments to ensure that inflation returns to the medium term target.
The ECB’s Governing Council is due to meet again next month where a further 0.25% increase is expected. However, the ECB could go even even further in the following months.
Ms Lagarde said she couldn’t project as to when the increases might end adding that interest rates likely to remain high “for as long as necessary” to bring inflation back down to 2%. However, its own estimates suggest that is a long way off this target.
Throughout the eurozone, headline inflation is expected to average 5.4% in 2023, 3.0% in 2024 and 2.2% in 2025.
The ECB have revised up their projections for core inflation - which excludes energy and food price inflation. It is now expected to reach 5.1% in 2023, before it declines to 3.0% in 2024 and 2.3% in 2025.
When asked whether the ECB are considering a pause in interest rate increases, following a similar announcement by the US Federal Reserve on Wednesday, Ms Lagarde said “we are not thinking about pausing”.
The latest interest rate hike will leave around 200,000 tracker mortgages exposed, with recent Central Bank of Ireland data from earlier this year showing the majority of new mortgage agreements being fixed-term amidst continued interest rate volatility.
Martina Hennessy, chief executive of mortgage broker Doddl, said the key issue for those on tracker mortgages is affordability and whether the time is right to relinquish the tracker to go on a fixed rate.
She said many of her clients are coming to them asking “when will this end” but there is no strong indication that it would.
“It's 4% as it stands now. The ECB have been very clear that they are going to keep increasing rates, they haven’t masked it. It is that very clear message of we will continue, this isn’t going to be paused,” she said.
Ms Hennessy is advising anyone considering dropping their tracker mortgage to seek advice before doing so.
Daragh Cassidy, of Bonkers.ie, said people on tracker mortgages will immediately see the rate increases reflected in their payments.
“In money terms, if you have €100,000 remaining on your tracker your repayments will go up by around another €12 or €13 a month. If you have €200,000 outstanding it’ll be around €25 more,” he said.
“But when all increases since last July are taken into account, tracker customers are now paying several hundred euro more each month.”
Mr Cassidy added that those on variable rates are likely to see a hike in their repayments soon
Minimum Essential Standard of Living
The increase comes as new research St Vincent de Paul’s Minimum Essential Standard of Living (MESL) shows that the cost for households to afford to “live with dignity” has risen almost 20% in the last three years with inflation heaped “relentless” pressure on families in the last 12 months in particular.
The research deep income inadequacy has now spread to a “wide range of household types and compositions”.
The increase in the MESL in the year to March 2023 was 10.6% nationally with home energy and the food shop the biggest drivers.
Robert Thornton, MESL research manager, said the analysis finds that the cost of the MESL food basket has increased by an average of 20.8%, in the year to March 2023.
“The MESL food basket is more exposed to increases in staples such as milk, butter and bread which have each increased significantly in price," he said.