There is growing speculation that Mario Draghi and his ECB colleagues are preparing to announce another round of monetary stimulus.
Barely seven months into its first €1Trillion quantitative easing (QE) programme, the ECB has come under massive pressure from financial markets to expand the programme.
Mario Draghi is scheduled to be in Malta today where he is expected to discuss the Q.E. expansion possibility.
Here in Ireland, the prospect of more Q.E. will have a number of immediate implications.
Better for exports
Ireland is one of the most reliant EU countries on exports to the UK and US. Further Q.E. will continue to put downward pressure on the value of the Euro versus the dollar and Sterling which aids exports to those countries as the cost of goods produced in Ireland become cheaper for buyers in those markets.
Better for tourism
A weaker Euro makes it cheaper for tourists from the US and UK to come to Ireland. Between the summer of 2014 and 2015, the value of the Euro versus the US dollar fell by approximately 17% which means that a tourist from Massachusetts would have found the cost of goods in Ireland cheaper by that amount between visits in 2014 and again in 2015.
Better for Irish mortgage holders
Of the 700,000 plus residential mortgage holders across Ireland, the overwhelming majority hold variable rate loans – both ‘tracker’ and standard variable rates. These loans are highly sensitive the ECB base rate of lending. If the ECB keeps Q.E. going, this means that any rise in the base interest rates will be put off into the future and no rate increases for mortgage holders here in Ireland. More money in mortgage holders pockets is good news for the overall economy.
Of course, at some point, mortgage holder should be planning for higher interest rates at some point in the future. It’s important they have a ‘mortgage fund’ on the ready for when that day eventually does come!