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ECB to meet to discuss potential cut to interest rates

A 0.25 per cent cut would be good news for mortgage holders – though most expect it to come next month, not today.

Image: Michael Probst/AP

THE GOVERNING COUNCIL of the European Central Bank will meet today to discuss whether its main interest rate should be cut – in a move that would prove a major boost to mortgage holders.

The regular meeting in Frankfurt comes as worries continue about the ability of Spanish banks to remain solvent, and the potential for the Spanish government to require emergency funding of its own in order to support the banking sector.

Though some analysts – including Danske Bank last week – have predicted that the bank may cut its rates by 0.25 per cent, others consider it more likely that interest rates will not be adjusted until next month’s meething.

Reuters suggests that the bank will be keen both to act, but not to do so immediately – as if it does so, it may be seen as taking pressure off Europe’s governments to bring forward policy initiatives of their own.

The bank could therefore opt to stand by and observe the outcomes of the European Council summit of EU leaders in three weeks’ time – and potentially act then, by cutting its main rates.

Another 0.25 per cent cut to the rates – which would be the third cut since Mario Draghi took over as the bank’s president in November – would have the most obvious impact on the holders of tracker mortgages, who would see their rates drop accordingly within days.

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It would have broader industrial impact too, however: the continent’s banks would be able to access cheaper funding from the ECB in order to pick up the pace of their day-to-day activities, and potentially free up the supply of credit to consumers and businesses.

The ECB would also then charge less interest on over €1 trillion of loans issued to the continent’s banks in the last six months.

Read: Could the ECB cut its main interest rate next week?

About the author:

Gavan Reilly

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