ECB sparks fears of further interest rate hikes as 300,000 notified of tracker payment rise

Eurozone inflation outlook fails to improve since July hike, prompting suggestion of large interest rate increase next month

The ECB increased interest rates for the first time in 11 years at its July meeting, which meant Irish banks had to notify tracker mortgage borrowers that their mortgages were automatically rising. 

A European Central Bank official has reignited fears of further hefty increases in interest rates, on the same day that many of the 300,000 Irish households on tracker mortgages got their first notification about the extra money they will have to pay after interest rates were hiked only last month.                   

The ECB increased interest rates for the first time in 11 years at its July meeting, which meant that Irish banks had to notify their tracker mortgage borrowers within four weeks that their mortgages were automatically rising in tandem with the half-point raise agreed by the central bank. 

Many of the notifications to customers arrived on Thursday. 

There had been hopes that the ECB, when it next meets in September, would temper the pace of its rate increases as the central bank, along with fellow central banks around the world, attempts to bring inflation under control.

Large interest rate increase

However, ECB board member Isabel Schnabel said in an interview that eurozone inflation outlook has failed to improve since the July hike, suggesting she favours another large interest rate increase next month, even as recession risks harden.

"In July we decided to raise rates by 50 basis points because we were concerned about the inflation outlook," she told Reuters.

"The concerns we had in July have not been alleviated... I do not think this outlook has changed fundamentally," she said. 

Her comments also came on the day that the European statistics agency confirmed that Ireland's inflation rate was 9.6% in July, unchanged from the previous month, and at 8.9% for the eurozone as a whole. 

That has provided some hope that the acceleration of price pressures is nearing a peak. 

The Eurostat figures are based on its harmonised measure of inflation which makes it easier to compare inflation rates right across the European Union.

The harmonised rates have in the past been slightly higher than the consumer prices measure, which in Ireland's case was running at 9.1% in July.

Professor Kieran McQuinn at the Economic and Social Research Institute told the Irish Examiner that Irish inflation was likely to peak at around current levels.

Germany's inflation rate in the month was running at 8.5%, and France's at 6.8%.