The European Central Bank has cut its interest rates by 0.25 percentage points at its meeting in Frankfurt today.
The deduction in rates is the first in almost five years and comes following 10 interest rate hikes since July 2022 which left them at a 22-year high.
The rate now stands at 4.25%, down from a record high of 4.5%.
The quarter point reduction, which had been heavily signalled in advance, will reduce the monthly repayments on every €100,000 of tracker mortgage debt by €12 to €13. That means the average tracker customer with €200,000 remaining over 10 or 15 years will save around €25 a month.
This will be immediately passed on to the country’s 180,000 tracker mortgage customers from next month.
It is at the discretion of lenders whether or not they pass the cut on to those on variable rates.
Explaining their decision to cut the rate, the ECB said in a statemenet: “Based on an updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it is now appropriate to moderate the degree of monetary policy restriction after nine months of holding rates steady.
“Since the Governing Council meeting in September 2023, inflation has fallen by more than 2.5 percentage points and the inflation outlook has improved markedly. Underlying inflation has also eased, reinforcing the signs that price pressures have weakened, and inflation expectations have declined at all horizons.
“Monetary policy has kept financing conditions restrictive. By dampening demand and keeping inflation expectations well anchored, this has made a major contribution to bringing inflation back down.”
The ECB’s unprecedented hiking of interest rates between July 2022 and September 2023 – it lifted rates on 10 consecutive occasions – has contributed to bringing down the headline inflation rate from a peak of 10.6 per cent in October 2022 to 2.6 per cent last month.
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