'Psychological shock' for Irish mortgage holders as ECB tipped to hike rates

Christine Lagarde has refused to rule out raising rates if soaring energy prices continue to affect the eurozone
'Psychological shock' for Irish mortgage holders as ECB tipped to hike rates

The potential for two interest rate increases this year will for the first time in a decade affect hundreds of thousands of Irish mortgage borrowers, including people on short-term fixed rates and trackers, senior broker Michael Dowling has said.

Last week, ECB president Christine Lagarde unexpectedly turned hawkish on inflation and, in a U-turn, refused to rule out hiking interest rates later this year should soaring prices of energy become embedded in the eurozone.

Mr Dowling, who has held senior posts in the mortgage industry, said the comments by Ms Lagarde marked the start of a “psychological shock” for almost all mortgage holders.

Fed and ECB expected to hike rates

Financial markets expect the Bank of England and the US Federal Reserve to set the pace for rate hikes and that the ECB will follow to increase interest rates twice later this year as evidence grows that inflation is here to stay.

A single increase of a quarter point adds about €40 to the monthly interest bill on a mortgage of €300,000, Mr Dowling said, and if the ECB were to start increasing rates, it would likely follow through with more rate hikes, as has been the case for the Bank of England.

He said that borrowers on three-year fixed rates shouldn’t automatically assume they can’t switch to a longer fixed-term rate.

Energy prices driving food inflation

Meanwhile, there was further confirmation that energy-driven inflation was spreading into food items, albeit at a limited pace.

Market researcher Kantar said Irish grocery prices, in the 30,000 items it regularly monitors, had risen by an annual rate of 1.7% in its latest survey. That’s the fastest increase since October 2020, according to Kantar, a rate which is in line with the 1.6% inflation for food and non-alcoholic beverages reported by the CSO last month.

There was better news on the wholesale markets for gas and oil. The price of European wholesale gas for delivery in March, April, and May fell over 6% yesterday afternoon, as French President Emmanuel Macron headed to Moscow for talks over Ukraine.

And the price of Brent crude eased back to $92.65 a barrel amid signs of progress in nuclear talks between the US and Iran, which could lead to the removal of US sanctions on Iranian oil supplies.

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