Talk of rate cut as ECB splits on decision

European Central Bank Governing Council members are split over whether scope remains for further interest-rate cuts as evidence mounts that the euro-area economy is on the mend.

Much needed rate cut
Rate cut would provide financial boost for struggling mortgage holders

This represents a mixed blessing for mortgage holders in Ireland where monthly repayments are directly linked to the ECB base rate of lending, including all variable rate mortgages.

On the positive side, policy makers still can’t rule out lowering the benchmark rate from the record low of 0.5 percent. Were they to do so, an estimated 400,000 tracker mortgage holders across Ireland would automatically benefit from lower monthly repayments. There is also an estimated 200,000 standard variable rate mortgage holders in Ireland. However, Irish banks are not required to pass on the benefit of any interest rate reduction to this segment of the variable rate mortgage market.

Bank of Austria Governor Ewald Nowotny said on Aug. 22 he doesn’t see “many arguments now for a rate cut” after the recent “stream of good news.”

The divisions within the 23-member council are emerging as the euro-area economy emerged from its longest recession in the second quarter with 0.3 percent growth from the previous three months.

A rate cut “is still on the cards,”  Central Bank of Cyprus Governor Panicos Demetriades said. “We cannot rule out that possibility, although one has to take a look at the new data. That data is more encouraging.”

Nowotny said he was “cautiously optimistic” about the outlook, though he described the recovery as “weak.” He signaled that there is no plan for a rate increase soon, saying “the most recent developments will have no immediate effects” on ECB policy.

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