LAST UPDATE | 17 Oct

INTEREST RATES HAVE been cut for the third time this year by the European Central Bank (ECB) as the inflation rate in the Eurozone begins to come under control.

Bank deposit rates have been cut by 25 points to 3.25%, in a move that had been widely anticipated. The reduction will instantly benefit those on tracker mortgages most notably.

It is also the first time in 13 years that the ECB has cut interest rates twice in a row and signals that the Eurozone regulators are prioritising economic growth over inflation prevention.

European Central Bank president Christine Lagarde said the bank is in the process of ‘breaking the neck’ of inflation through its cuts.

During questioning by reporters, Lagarde pointed to eurozone inflation falling to 1.7% last month – the lowest since April 2021. She said this was helped by a 6.1% drop in energy costs.

But she conceded that food, alcohol & tobacco prices across the eurozone rose 2.4% over the last year – that’s too high for the ECB’s comfort.

“Have we broken the neck of inflation. Not yet,” Lagarde said. “Are we in the process of breaking that neck? Yes.”

She added: “It’s not broken completely yet, but we’re getting there.”

Lagarde told journalists that the bank’s Governing Council is “determined” to ensure that inflation returns to its 2% medium-term target in a timely manner.

The Governing Council said today in a statement that the fall in the inflation rate is “well on track” and in a position to where the body feel comfortable enough to focus on strengthening monetary policy.

The ECB warned that there will be some spikes in the inflation rate in the coming months which will later level off into next year.

Meanwhile domestic inflation – such as the prices of goods – remains high but increases in wages are taking place at an “elevated rate” the regulators said, signalling that a potential ‘squeeze’ on workers won’t be prolonged.

However, for companies, labour costs are expected to remain high for the time being as a result.

Chairperson of the Irish Mortgage Advisors, Trevor Grant, said this rate cut will benefit existing mortgage holders but may be of limited benefit to people currently seeking their application to be approved. 

Grant said this is because home loan rates did not increase at the same levels as the ECB rate for over a year between 2022 and 2023 and because banks, now, are also “under pressure to increase returns for their savers”.

While savers will most likely not benefit from today’s decision, banks may seek to protect that cohort’s interest rates. Grant hopes instead that the cut will being about increased competitiveness to the sector. 

He added: “It is really only the 180,000 tracker mortgage holders who will benefit from the ECB reduction announced today as the rate their bank charges is pegged to the ECB rate and so will fall in tandem with it.”

He said for every €100,000 remaining on a tracker mortgage, monthly repayments are set to drop by around €13.