Bets pile up for ECB half-point rate hike next month, raising pressure on Irish households

It comes after stronger-than-expected US jobs figures last week fuelled expectations of another rate hike in there in September

The European Central Bank's fight to control energy and food prices last month by hiking interest rates 50 basis points, or half a percentage point, will this summer automatically add to the cost of servicing home loans by 300,000 holders of tracker mortgages in Ireland.  

Markets have started to signal that the European Central Bank will hike interest rates by a further half a point when it next meets in September.

At its last meeting in July before its summer break, the central bank announced the first rate hike for 13 years, as it attempted to stop soaring inflation pressures from becoming embedded across the eurozone economy. 

However, its fight to control energy and food prices last month by hiking interest rates 50 basis points, or half a percentage point, will this summer automatically add to the cost of servicing home loans by 300,000 holders of tracker mortgages in Ireland.  

Many of the banks, however, deferred raising their variable rate and fixed-rate mortgages for 430,000 Irish households for the time being. 

The signs are that the ECB will again seek to raise interest rates by a hefty amount next months, according to financial bets by traders, who on Tuesday raised their bets on a half-point interest rate hike by the ECB in September.

Traders are also trying to weigh whether the ECB will be forced to raise rates by a quarter or a half point at the next meeting after stronger-than-expected US jobs figures last week fuelled expectations of another large, of 75 basis points, rate hike in the US in September.

US inflation and the scale of US rate hikes can have significance in the deliberations of the ECB because the central bank has to keep a wary eye on the exchange rate of the euro and dollar should a weak euro lead to the eurozone importing more inflation. 

A weak euro can have an immediate effect on costs in all countries in the eurozone, from Ireland to Greece, because global crude oil prices are traded in dollars. 

On Tuesday, bets on ECB rate hikes increased, with traders pricing in over a 95% chance of a 50 basis point hike at the bank's September meeting, up from around a 50% chance last week. 

Irish Examiner. Additional reporting Reuters