ECB hits pause on rate cuts but markets eye another reduction in September

Since July 2022, the ECB implemented 10 interest rate hikes, the last one announced in September 2023 and tracker mortgage customers have carried the full weight of these increases.

The president of European Central Bank Christine Lagarde Pic: AP Photo/Michael Probst

The European Central Bank held its main lending rate steady at 4.25% at its latest monetary policy meeting but analysts expect at least one more rate reduction this year.

The European banking regulator reduced interest rates by 0.25% last month but experts predicted a consecutive cut was unlikely as eurozone inflation remains stubbornly above the ECB’s target of 2% and wage growth continues to fuel inflationary pressures.

Bets have strengthened that the ECB will announce a further 0.25% interest rate cut in September when the regulator reconvenes after it breaks for the summer in August as data indicates eurozone wage inflation looks set to cool, albeit at a gradual pace.

"In line with expectations, the inflationary impact of high wage growth has been buffered by profits," said the ECB.

International wealth management firm forecast two more cuts this year, a 0.25% cut in in both September and December.

However, the ECB has continuously stressed it will maintain a data-dependent and meeting-by-meeting approach rather than commit to a particular rate path.

Meanwhile, brokers expect Irish banks to leisurely pass on rate cuts to customers given they were overall slow to implement rate increases.

The three main lenders in the retail banking market in the Republic recently posted bumper annual profits, fuelled by high interest rates. The banks are set to give an update on their financial performance so far this year in the coming weeks. 

Since July 2022, the ECB implemented 10 interest rate hikes, the last one was announced in September 2023 and tracker mortgage customers have carried the full weight of these increases.

There are around 179,000 tracker mortgage customers in the Republic, all of which are exposed to monetary policy changes including reductions.

Meanwhile, customers coming off fixed-term contracts are now renegotiating agreements in a much higher interest rate environment.