ECB hints at further rate hike
This news comes as the ECB says it will offer a fresh round of loans to banks in light of continuing fears about the eurozone debt crisis. The ECB has also resumed buying government bonds.
ECB president Jean-Claude Trichet said the bank would continue to “monitor very closely” inflation risks in the euro zone.
Already this year the ECB has hiked rates twice from 1% to 1.5% in an effort to combat eurozone inflation. Each 0.5% hike means an extra €15 a month on a €100,000 mortgage.
Mr Trichet also said recent figures had shown a slowing in the pace of economic growth and there was particularly high uncertainty about the outlook.
Mr Trichet said economic uncertainty was “particularly high”.
It is unsure what way the ECB will move in relation to interest rates in the coming months, but the bank has done little to diminish fears of another rate hike before the end of the year.
Meanwhile, Mr Trichet declined to say what bonds the bank was buying or how much. He said the bank acted in response to “renewed tensions in some financial markets in the euro area”.
While Mr Trichet was speaking, traders said that the ECB was buying Portuguese and Irish government debt.
One trader told the Financial Times: “It is another bunch of half measures from Europe again. Why buy Ireland or Portugal?”
An investment bank strategist said: “It is like sending a warning signal to markets: if you don’t behave we will send out the big bazooka.”
The ECB will not disclose the scope of its bond-buying until next week at the earliest, but early indications were that the amounts were relatively modest.
“It might be interpreted as more of a warning shot rather than a broad-based onslaught,” analysts at Barclays Capital said.
Head of the Irish Brokers Association Ciaran Phelan said that the spread of the sovereign financial crisis to other EU countries has a silver lining for many hard-pressed Irish mortgage holders who are finding it increasingly difficult to meet their monthly mortgage payments.
“With this degree of Euro-wide economic uncertainty, the threat of further rate increases this year has been lifted. Sanity also appears to have finally registered in the minds of our bankers with increased talk of debt forgiveness or debt write-off for those unable to repay their entire mortgage,” he said.
The Professional Insurance Brokers Association (PIBA) said that there is absolutely no justification for an increase now or in the foreseeable future.
