ECB cuts rates and leaves room for more easing as growth lags

Irish homeowners on tracker mortgages will benefit immediately by approximately €13 per €100,000 borrowed

President of European Central Bank Christine Lagarde.

The European Central Bank cut interest rates on Thursday and kept the door open to further policy easing as concerns over lacklustre economic growth supersede worries about persistent inflation.

It was the fifth ECB rate cut since June and markets expect two or three more this year, driven by arguments that the biggest inflation surge in generations is nearly defeated and the flagging economy needs relief.

The decision will bring the lender's key interest rate to 2.75% as the bank continues its easing cycle amid what will likely be a year of heightened uncertainty. 

Latest figures from Eurostat show price levels have fallen significantly from their 2022 high, with inflation across the euro area coming in slightly ahead of the ECB's target 2% rate in December. 

The ECB reaffirmed disinflation was "well on track" and welcomed slower growth in wages, which should help bring down inflation in the domestically focussed part of the economy.

There are currently around 126,000 people in Ireland on tracker mortgages who will benefit from the latest cut, says Michael Dowling of Dowling Financial, with every reduction in the ECB’s main refinancing rate lowering repayments by €13 a month for every €100,000 owed on a tracker. 

"Wage growth is moderating as expected, and profits are partially buffering the impact on inflation," it said in a statement accompanying the decision.

With the euro zone economy stagnating in the last quarter due to an industrial recession and weak consumption, the ECB is seen sticking to its easing path even after the US Federal Reserve kept rates unchanged and hinted at a lengthy pause.

ECB policymakers are likely to have breathed a sigh of relief at their meeting after US President Donald Trump's new administration did not impose blanket trade tariffs as feared, although the threats he made have cast a shadow on the outlook.