European Central Bank keeps interest rates unchanged despite cooling inflation 

President of European Central Bank Christine Lagarde. Pic: (AP Photo/Michael Probst, File)

The European Central bank has kept its key interest rate unchanged at 4%, however the regulator is expected to make a cut before summer as inflation cools. 

After today, the ECB next meets on April 11, June 6, and then on July 18 before its summer break.

Eurozone inflation, which peaked at over 10% in late 2022, eased to 2.6% last month. Just above the ECB's 2% target. 

However, tight labour markets have made monetary policymakers cautious. 

"Although most measures of underlying inflation have eased further, domestic price pressures remain high, in part owing to strong growth in wages," said the regulator.

The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 4.5%, 4.75% and 4% respectively.

The ECB projected inflation to average 2.3% in 2024, 2% in 2025 and 1.9% in 2026.

Meanwhile, mortgage experts say any rate cuts can't come soon enough for the 70,000 households whose fixed-rate loans expire this year, and for the 179,000 tracker mortgage households who have faced the brunt of the rapid rise in official interest rates since the summer of two years ago. That's because the monthly service payments for tracker households are directly linked to changes in ECB official rates.

Senior mortgage broker Michael Dowling said that the 70,000 households, of a total of 430,000 households in the Republic on fixed-rate mortgages, whose rates expire this year still face re-financing to higher rates even if official ECB rates were to fall by December. They are typically paying back their existing mortgage loans at rates of 2.25%, and new fixed-rate mortgages will be costlier even if ECB official rates fall sharply by the end of the year.

Irish banks will also be in no hurry to pass on the benefits of the ECB cuts to customers, Mr Dowling said. "When ECB rates went up, not all of the increases were passed on by the banks. By the same logic, the full decreases will not be passed on," he said.

After today, the ECB next meets on April 11, June 6, and then on July 18 before its summer break.

Broker and managing director of MortgageLine, Stephen Hamilton, echoed Mr Dowling. He does not see mortgage lenders cutting rates in the short term “no matter what the ECB does”. Mr Hamilton said it is looking unlikely the regulator will cut rates before June as, even though inflation is cooling, there is “still too much volatility in the world”.