The European Central Bank (ECB) has cut interest rates for the third time this year and for a second straight meeting amid fears of more a pronounced slowdown in the euro zone economy.
The Frankfurt-based central bank on Thursday trimmed its key deposit rate by 25 basis points to 3.25 per cent, a move which had been widely anticipated by markets.
“The incoming information on inflation shows that the disinflationary process is well on track,” the ECB said in a statement accompanying the announcement.
The latest rate reduction will instantly benefit tens of thousands of tracker mortgage holders in Ireland reducing the monthly repayments on every €100,000 owed by roughly €13.
That means the average tracker customer with €200,000 remaining over 10 or 15 years will save around €25 a month.
Tracker mortgage holders also benefited from a technical rate adjustment last month which cut the gap between the ECB’s main refinancing rate and its deposit rate.
With revised data showing inflation across the euro area at 1.7 per cent last month – below the ECB’s target rate of 2 per cent – attention has switched to the bloc’s flagging economy and whether Frankfurt will increase the pace of rate cuts in the coming months to bolster activity.
According to the ECB’s own forecasts published last month, growth is expected to slow to just 0.2 per cent in the third quarter.
Several analysts predicted the ECB would now reduce rates at every meeting through to next March in an effort to arrest the slowdown.
“Given the loss in growth momentum and the moderation in inflation we now expect the ECB to cut rates by 25 basis points at each of the upcoming four meetings,” UBS economist Reinhard Cluse said.
Market focus will now turn to ECB president Christine Lagarde’s post-meeting comments and whether they signal a looser path for rates going forward.
According to Eurostat figures, released ahead of the ECB’s rate decision, inflation across the bloc slowed more than expected in September.
Consumer price growth moderated to 1.7 per cent last month from 2.2 per cent the previous month. An initial flash estimate, published earlier this month, put inflation at 1.8 per cent.
Ireland was estimated to have the lowest inflation rate, as measured by the harmonised index of consumer prices (HICP), of any euro zone state at 0.0 per cent down from a previous estimate of 0.2 per cent.
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