Hike rates

European Central Bank expected to raise rates “another 1.25%” before the end of the year

Around 300,000 households with tracker mortgages are facing an increase in the cost of their home loan that will immediately add €1,000 to the annual cost of servicing their home loan, experts say, and will face further costs. higher by the end of the year.

It comes after the European Central Bank raised official rates by half a point as the central bank battles inflation which has risen since Russia invaded Ukraine on February 24. “Price pressures are spreading into more and more sectors,” ECB President Christine Lagarde told reporters in Frankfurt.

Ireland’s leading mortgage brokers have predicted that mortgage costs will rise for many of the Republic’s 730,000 mortgage households, although some banks have postponed passing on the additional costs to their variable rate mortgage customers for the time being. The 300,000 households on tracker mortgages automatically see their rates rise in line with ECB rate hikes, while those on fixed-rate mortgages that expire later this year will almost certainly face higher costs also.

Stephen Fagan, head of euro money markets at the Bank of Ireland, said the ECB is expected to raise rates another 125 basis points, or 1.25%, by the end of the year “but that could change depending on whether Russia shuts down or not.” gas pipelines in the coming weeks”.

At the press conference, Ms Lagarde said a bigger-than-expected hike was needed because inflationary pressures, including energy and food price hikes, had intensified in the euro zone.

“We expect inflation to remain undesirably high for some time,” she said, citing food prices and the depreciation of the euro against the dollar among other factors contributing to inflationary pressures. .

The euro has fallen around 10% against the dollar this year, adding to price pressures as global oil trades in dollars, economists have pointed out.

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She said households in the eurozone were benefiting to some extent from measures taken by governments to ease the costs of energy bills.

Weighing the risks, Ms Lagarde said a protracted war and disruption of energy supplies from Russia, as well as economic uncertainty and future energy and food price developments could keep the inflation for longer and have an impact on growth.

Ms Lagarde told reporters that the board of governors’ unanimous decision to raise rates by half a point was based on the “upside risk to inflation”.

For Ireland, businesses and households are facing higher borrowing costs for the first time in over a decade.

Neil McDonnell, chief executive of the Isme group of companies, said he hoped banks here would not pass on the ECB’s hike, adding that lenders had the “margin” to absorb some or all of the increase in a half point. “But the message for our members is that there is more to come because the interest rate cycle is not over,” McDonnell said.

And businesses face the threat of even higher Irish energy prices if Russia interrupts or reduces gas supplies to mainland Europe this winter, he said.