ECB keeps rates at record low of 1%

THE European Central Bank gave no indication it was considering raising interest rates yesterday meaning more good news for tracker mortgage holders.

The ECB left interest rates at their record low 1% for a 17th month and ECB president Jean-Claude Trichet said rates are “appropriate,” signalling no immediate plan to tighten monetary policy.

Mr Trichet extended emergency lending measures for banks into 2011 and the ECB will keep offering banks unlimited one-week and one-month loans until at least January 18.

The ECB will also offer banks three-month loans in October, November and December at interest rates linked to the ECB’s average benchmark rate over the maturity of the loan. The bank raised its forecasts for 2010 growth to about 1.6% from 1% previously and to 1.4% in 2011 from a previous projection of about 1.2%. This revision was the result of a “stronger-than-expected rebound in growth in the second quarter, as well as better than expected developments over the summer months”.

“For 2011, the range has also been revised upwards reflecting mainly carryover effects from the projected stronger growth towards the end of 2010,” said Mr Trichet.

Analysts do not expect the ECB to lift its main interest rate until well into next year. Chief economist with Ernst & Young, Marie Diron said she does not expect any rate increase before 2011 at the earliest.

But the Professional Insurance Brokers Association (PIBA) said as the ECB continues to keep interest rates at 1% the gap is widening between those on tracker mortgages and everyone else. Director with the PIBA, Rachel Doyle said 84% of mortgages issued in the last six months of 2009 were variable.

“There is an extremely limited choice available to newer mortgage holders – primarily younger people. While it can be argued that interest rates are still relatively low in historical terms, there is no upper limit to where the lenders can increase their variable or fixed rates. Each 0.5% hike in rates adds about €24 to a €100,000 mortgage,” she said.


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