The man credited with predicting the financial meltdown, New York University economist Nouriel Roubini, also said the ECB should expand government bond purchases to offset the recessionary effects of euro-area austerity measures.
“That has to be the policy mix: tight fiscal, but much more easy money, looser monetary policy, more quantitative easing and also a weakening of the euro,” he said.
The ECB kept its benchmark rate of 1% on hold yesterday and many economists think it will be late 2011 or early 2012 before rates increase again.
“They need to go to zero, they need to do more quantitative easing, they need to support dysfunctional markets, they need to signal that they are actually not uncomfortable with a weaker euro as long as that is a gradual and orderly process,” said Mr Roubini.
NCB stockbrokers expects rates to be on hold for all of 2010 and 2011 while Ernst & Young believe the first interest rate increase may come around the middle of next year.
Ulster Bank economist Simon Barry said the downgrade to the growth outlook for next year and the latest relaxation of its liquidity policies is a signal that any eventual change in interest rates is likely to come later rather than sooner, with a rate hike this year now looking “extremely unlikely”.
Chief executive of the Irish Brokers Association, Ciarán Phelan, said the decision “hasn’t stopped the banks from enhancing their margins at the expense of existing mortgage holders.”
Meanwhile the Professional Insurance Brokers Association (PIBA) said homeowners should consider fixing their mortgage rate but warned that if they fix for just two to three years they could leave themselves exposed to a large jump in repayments within a relatively short time.
“Five years or longer at a value low rate is likely to yield the best value over the longer term,” she said.
Statistics from PIBA Mortgage Services show the average mortgage is now around €190,000.
“Even if property prices may not have reached the bottom yet, there are two serious considerations now for first-time buyers. The first is that delaying could mean that interest rate increases could work out more expensive than the benefit derived from a further drop in property prices.
“The second is that it is virtually as cheap to buy as rent at the moment,” she said.
Also yesterday the Bank of England left its base interest rate at a record low of 0.5% for the 16th consecutive month as the British economic recovery remains fragile.