Trackers safe as ECB rates unchanged

TRACKER mortgage holders are likely to be spared any interest rate increases in the coming months, with the European Central Bank (ECB) signalling rates will remain at their record low rate.

Although ECB president Jean-Claude Trichet gives little away when announcing any changes in interest rates, analysts were led to believe there will be no move any time soon.

The analysts had been expecting some indication of a hike given the rise in inflation recently.

Mr Trichet said risks from rising prices are “broadly balanced,” causing investors to pare bets on an increase in borrowing costs even after euro-area inflation accelerated the most in two years in January.

Also yesterday the dollar strengthened after reports showed US service industries grew at the fastest pace since 2005 and jobless claims fell more than estimated.

The euro retreated the most in two months against the dollar, while oil reversed earlier gains.

Mr Trichet signalled that officials remain concerned about rising consumer prices even as risks to economic growth persist.

He said “very close monitoring is warranted” on inflation after the bank left the benchmark lending rate at a record low of 1%.

Simon Smith, chief economist at FXPro Financial Services in London said: “The markets at least were expecting a ratcheting up in hawkishness. He’s not really stepped it up a gear.”

Mr Trichet said faster inflation was prompted “mainly” by rising energy and commodity costs and that this “has not so far affected our assessment that price developments will remain in line with price stability over the policy-relevant horizon”.

“Financial markets had built in significant rate hike expectations in the days leading up to the meeting,” said Nick Kounis, head of macro research at ABN Amro Bank in Amsterdam.

“We saw a pullback during the press conference, reflecting that president Jean-Claude Trichet did not further step up his hawkish rhetoric.”

ECB governors will continue to watch inflation closely, they said, but “developments have not so far affected our assessment that price developments will remain in line with price stability” for the foreseeable future.

“Obviously, the ECB did not want to alter market expectations” at the meeting or during the press briefing by Mr Trichet, ING senior economist Carsten Brzeski said.

Mr Trichet said the ECB’s government bond buying programme to prop up the debt of weaker eurozone members was “ongoing”.