LAST UPDATE | 12 Dec 2024

THE EUROPEAN CENTRAL Bank (ECB) has cut interest rates in the Eurozone from 3.25% to 3%.

It is the ECB’s third straight reduction as it increasingly focuses on spurring lending to boost consumer spending and business investment in the 20 countries that use the euro.

The Frankfurt-based regulator had increased rates since mid-2022 to combat rising energy and food costs as inflation rates grew. The increased rates were always to be temporary as the ECB aimed to reach a 2% inflation rate.

But pressures remain a concern as France and Germany’s economies are underperforming amid political turmoil in the respective parliaments.

Stephen Grissing, Investment Strategist at Davy said that today’s cut is not surprising. He suggested that the ECB’s decision means there could be larger cuts in 2025 if geopolitical uncertainties justify so.

“A declining ECB interest rate implies lower future borrowing costs, which would be welcomed by homeowners and farmers,” Grissing said.

Darragh Cassidy of Bonkers.ie reminded those on tracker mortgages that they will benefit the most from today’s announcement, as someone with €200,000 remaining on their mortgage over 10 or 15 years, will save around another €25 a month.

Those on variable rates will likely see a reduction in repayments also.

Cassidy added that savers will likely see fewer returns, however. He encouraged those with high-interest savings account to lock into those rates while they are still available.

Governments are also bracing for Donald Trump’s return to the White House next month, after he has threatened to slap hefty new tariffs on all imports to the United States.

Trump has also previously singled out the EU as the bloc runs a sizeable trade surplus with the world’s biggest economy. 

ING economist Carsten Brzeski said a quarter-point reduction would follow the ECB’s usual “cautious” approach and amount to a “typical European compromise” between supporters of keeping policy tight and those wanting to ease faster.

While a bigger cut would send “a strong signal that the ECB is seriously trying to get ahead of the curve,” he predicted the central bank would be reluctant to go too far.

With reporting by – © AFP 2024 and Muiris Ó Cearbhaill