ECB likely to hold fire on interest rate cuts — for now

THE European Central Bank (ECB) is expected to keep interest rates on hold when it meets tomorrow.

Mortgage holders enjoyed a series of cuts over the last few months. However, it is likely they will have to wait until March before any further cuts are announced. Ulster Bank economist Simon Barry said the ECB is likely to pause this month and take a breather.

“The ECB cut rates last month and I think they initially hadn’t intended to cut rates in January but after apoor economic data they didn’t have much choice.

“Also they met quite late in January leaving just three weeks to the February meeting.”

Mr Barry expects the bank to cut rates by half a point in March.

Director of the Irish Mortgage Corporation, Frank Conway said all indications are that the ECB will not move on interest rates tomorrow.

“The ECB is now keen to assess the effect of their recent record cutting spree on eurozone economies. Some expectations for further cuts in March will be easier to assess after the ECB press conference tomorrow.

“In addition, it is reasonable to expect the governing council of the ECB to take a breather as they prepare for any interest rate reductions that bring rates to record lows,” he said.

The ECB last month reduced its base-lending rate by half a percent to 2%, matching a record low.

After the announcement ECB president Jean-Claude Trichet was his usual guarded self at the press conference, but economists said it was significant that he didn’t rule out the possibility of further rate cuts.

He emphasised that 2% was not necessarily the lower limit for rates and indicated that the March meeting would be “an important rendezvous”.

“This suggests the strong possibility of a rate cut in March. We think an emerging picture of a further sharp deterioration in activity accompanied by strong disinflationary pressures will prompt a fall in rates as low as 1% by summer,” said KBC’s Austin Hughes.