This will be a blow to borrowers who expected interest rates to fall sooner.
The ECB is meeting in Athens today, but it is not expected to raise interest rates again after the 10th increase last month; this was the most aggressive tightening of monetary policy in its 25-year existence.
But economists have warned that persistent inflation and wage growth could mean rates will rise again.
Even if they don’t rise, they said, it will be late next year for interest rates to start falling.
The basic refinance rate trackers are pricing in is currently 4.5 percent.
High interest rates have hurt existing mortgage holders and house hunters, according to Joey Sheahan, credit manager at online broker MyMortgages.ie.
He said since the ECB started hiking interest rates in July last year, existing tracker mortgage holders had already seen their repayments rise by €461 per month, or €5,532 per year. This is based on a mortgage of €220,000 with 15 years remaining.
Each 0.25 percentage point increase in mortgage interest rates adds approximately 156 euros to the annual repayment of every 100,000 euros of loan taken out over 25 years.
Higher interest rates also limit how much house hunters can borrow. This is because the amount of proven repayment capacity that banks want to see increases by up to €600 per month for a €300,000 mortgage; Banks want to see mortgage applicants save more each month.
Dermot O’Leary, chief economist at Goodbody Stockbrokers, said the ECB was facing a picture of weakening growth and stubbornly high inflation.
Falling growth figures in the Eurozone should see the ECB’s rate hike journey come to an end.
“The concern is about wage pressures that still exist, so we will have to wait for evidence that those pressures will also ease before we cut rates,” Mr O’Leary said.
“This will not be seen in the short term, so we face a period where rates will remain at current levels until 2024.”
Independent economist Austin Hughes said the ECB had already raised interest rates too much and too fast, and this week’s sharp decline in euro zone bank lending and data from purchasing managers signaling a recession made that clear, but he thought it could last until next year. rates are cut.
“The consensus view is that it will be towards the end of 2024 before the ECB will consider reversing course, but I think the signals of serious problems in the euro zone will escalate a little faster,” Mr Hughes said. “Therefore, the pressure for one or more rate cuts will become serious in the spring of next year and will probably force the European Central Bank’s hand by the summer.”
BOI economist Michael Savage said that with inflation still stubbornly high, the ECB may have little choice but to start raising interest rates again.
ECB chief economist Philip Lane expressed concerns about wage growth. He said incomes in the region increased by 4.5 percent through the second quarter of the year.
“We need to see wage growth slow. “If inflation shocks are large enough or persistent enough, the ECB will need to be open to doing more,” he added.
Gabriel Makhlouf, Governor of the Central Bank of Ireland and member of the governing council of the European Central Bank, said that European Central Bank policy makers are closely monitoring the crisis in the Middle East.
“In my view it’s too early to tell what the consequences will be,” he said. “We are monitoring developments closely because they will have economic impacts on us to some extent.
“For example, this does not automatically mean that it will have a significant impact on monetary policy. “I guess we’ll have to wait to see exactly what happens.”
