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ECB cuts interest rate to new low of 0.5pc

The European Central Bank has bowed to pressure and delivered a 0.25pc interest rate cut. The move comes following a fall in inflation in the eurozone to a three-year low while record unemployment had increased pressure on the ECB to deliver a cut in interest rates.Each 0.25pc reduction eases monthly repayments by €15 on every €100,000 of debt on a tracker mortgage.

Annual inflation in the 17 countries that use the euro dipped to 1.2pc in April. This was the lowest since February 2010 and compares with 1.7pc a month earlier, according to the European Union’s statistics office in Luxembourg.

The rate has been below the ECB’s 2pc ceiling since February. March’s jobless rate in the eurozone rose to 12.1pc, the highest since the data series began in 1995.

The Frankfurt-based ECB sees inflation being subdued this year and next.

Over the course of a year, the savings amount to €444 for someone on a €300,000 tracker.

A reduction in rates piles pressure on banks to resist another hike in variable rates. Experts said that is why AIB, EBS and Haven pre-empted the likely ECB rate cut by hiking variable rates from June by up to 0.4pc.

ECB president Mario Draghi last month signalled that the ECB stood ready to cut interest rates, warning that the economic downturn had now spread into parts of the 17-member eurozone that had not been impacted up to now.

And there was no risk of inflation in the euro area, he said. Any threat of inflation would rule out a rate cut.

The move is a boost for the 375,000 homeowners with tracker mortgage rates.

The interest charged on these mortgages has to come down whenever the ECB rate reduces.

A cut would come at a time when property tax bills are popping through letterboxes.

The Independent – Charlie Weston


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