Irish Examiner View: Interest rate rises will have consequences beyond macroeconomics

Increases to in the ECB interest rate have the potential to raise mortgage repayments significantly for those on tracker mortgages here.

Christine Lagarde, president of the European Central Bank, said the the ECB cannot reduce the price of energy through monetary policy. Picture: Michael Probst / AP

If it seems like only yesterday that news of an interest rate hike from the European Central Bank was being discussed, that’s an exaggeration — but not by much.

In early September, rates were hiked by 0.75%, and Wednesday brought confirmation of another increase by the same amount. Why? The ECB is clearly trying to rein in rising inflation in the eurozone, which was pegged at 10% in figures released last month.

The cost of energy is seen as one of the main drivers in rising inflation in the eurozone, however, the comments of ECB president Christine Lagarde last month remain pertinent. Lagarde pointed out then the ECB cannot reduce the price of energy through monetary policy, but added that interest rate hikes show how serious the bank is about reducing inflation.

This may not be the final interest rate hike of the year either — it’s anticipated there may be another increase at the ECB’s December meeting — though a general economic slowdown in the eurozone in 2023 would slow the rise in inflation anyway.

One similarity between the two interest-rate hikes, of course, is that both have the potential to increase mortgage repayments significantly for those on tracker mortgages here.

What's your view on this issue?

You can tell us here

And, as was the case with last month’s increase, a rise in mortgage repayments puts pressure on household spending generally. While the ECB strategy may be sound in a transnational, macroeconomic context, the immediate reverberations in homes across Ireland may be far less abstract and much more painful.

It’s not called the dismal science for nothing.