THE EUROPEAN CENTRAL Bank has cut interest rates by a quarter point to 2.5%.

It’s the second reduction this year and the sixth since June 2024.

It marks a change in focus for the ECB, which has shifted from tackling inflation to providing relief for the single currency area, which has been eking out meagre growth.

The rate reached a record of 4% in late 2023 after the ECB launched a furious hiking cycle to tame energy and food costs that surged in the wake of Russia’s invasion of Ukraine.

In a statement announcing the decision, the ECB said the process of inflation coming down was “well on track” and it believed that it would settle around the central bank’s two-percent target.

Eurozone inflation eased slightly to 2.4% in February.

But in a sign of continuing price pressures, the ECB raised its inflation forecast for this year to 2.3% from a previous prediction of 2.1%.

Crucially, the ECB tweaked guidance to say that rates were becoming “meaningfully less restrictive”, suggesting they were no longer having a major impact on bringing down inflation.

The change in language is a signal markets have been on the lookout for, and which they believe suggests that policymakers are gearing up to halt rate cuts.

Highlighting the continued economic woes for the 20 countries that use the euro, the central bank trimmed its growth forecast for 2025 and 2026, to 0.9% and 1.2% respectively.

The bank also warned about “current conditions of rising uncertainty,” insisting it would make its decisions based on incoming data.

Uncertainty about the fallout from potential US tariffs – President Donald Trump has threatened a 25% duty on all EU goods – was already clouding the outlook and potentially pushing rate-setters towards hitting pause.

Mortgage rates

Daragh Cassidy of Bonkers.ie remarked that today’s reduction will be “welcomed by those on trackers in particular”.

Those on variable rates however should also see their rates fall.

Cassidy added that the “so-called mortgage prisoners whose loans were sold to vulture funds” also stand to benefit.

He remarked that the ECB might pause its rate cutting cycle in April but that there is “almost guaranteed” to be another one or two cuts before the end of the year, which could take the ECB’s interest rates down to 2% – half of its record high.

However, Cassidy said that “savers will see their rates fall further”.

“Already since the start of the year AIB, Bank of Ireland, Bunq and N26 have all cut their savings and deposit rates. And more cuts are likely after today,” said Cassidy.

He encouraged people with savings to “lock into the higher rates while they’re still available”.

Elsewhere, Trevor Grant, chairperson of Irish Mortgage Advisors, said that tracker mortgages will fall from 2.9% to 2.65% following today’s ECB decision.

“For a tracker mortgage customer, today’s rate reduction means that for every €100,000 remaining on their mortgage over 10 or 15 years, their repayments will fall by around €13 a month,” said Grant.

He added that the last interest rate cut by the ECB means “it’s only a matter of time before sub-3% mortgage rates become a reality in Ireland”.

“Sub-3% mortgage rates could become a reality for many borrowers from this summer, depending on how quickly lenders cut their rates following today’s ECB rate cut and any future ECB rate cuts this year.

“Irish mortgage rates could even fall to as low as 2.5% or below in 2025 if the ECB continues to cut its main lending rate in the coming months, as is expected,” added Grant.

He said that while those on variable and fixed rate mortgages won’t “immediately benefit, in time, the reductions do trickle down”.

“The recent fixed rate mortgage cuts announced by a number of banks is evidence that this is already happening,” said Grant.

“We could see multiple fixed and variable mortgage rate cuts this year.

“We don’t however expect any other market-leading rate cuts from lenders until the summer at least.”

Grant remarked that homeowners and house buyers “should make it their prerogative to make the most of falling rates”.

“Now is a really good time to consider shopping around to get better terms on your mortgage and potentially save thousands of euro.”

-With additional reporting from © AFP 2025