ECB: Rates to stay at record low

THE European Central Bank yesterday offered further confirmation that interest rates are set to remain at their record low levels for the remainder of the year.

It left interest rates unchanged at 1% for the fourth month in a row yesterday, having dropped rates by 3.25% betweenOctober last year and May this year.

AIB economists said a further cut in interest rates seems “most unlikely” with leading economic indicators picking up in the eurozone and elsewhere. They also said that the ECB is unlikely to be in any hurry to hike rates again.

ECB president Jean-Claude Trichet said the euro region’s recovery from recession will be “bumpy” and signalled officials are in no rush to withdraw emergency stimulus measures.

While latest data suggest “the significant contraction in economic activity has come to an end”, the recovery “is expected to be rather uneven”, Mr Trichet said.

“It isn’t time to exit” policies designed to boost growth, he added.

The bank yesterday raised its forecast for economic growth with Mr Trichet saying there are increasing signs of a stabilising of economic activity in the euro zone and elsewhere.

Colin Ellis, an economist at Daiwa Securities SMBC said the key message from yesterday’s decision is that rates are on hold for an extended period and the ECB is in no hurry to remove the monetary stimulus that it has put in place.

Meanwhile, Irish banks were accused yesterday of hitting customers with repayment increases that are not due.

Chairman of the finance committee of the Irish Brokers Association, Paul Kinane, said: “We have come across a number of instances where banks have ‘mistakenly’ moved existing customers onto variable rates when their fixed rates period ended, even though the original loan offers stated that they were entitled to a tracker rate.

“In each case the broker brought this to the client’s attention which makes us wonder how those mortgage holders without advisors are faring. Unfortunately, we suspect that many of them are simply signing and returning the new documents without comparing it to the original loan offer and ultimately paying more on their mortgage.”

The ECB expects inflation to average 0.4% this year and 1.2% in 2010, up from 0.3% and 1% forecast in June. That is still below the bank’s goal of keeping annual price gains just below 2%.

KBC economist, Austin Hughes agreed with other commentators and said interest rate increases seem a “considerable distance away”.


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