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Jean-Claude Trichet will leave the ECB in November - and his successor may be forced to lower interest rates almost immediately. Luca Bruno/AP

Relief for mortgage holders? Analysts reckon ECB will cut interest rates

The ECB had been expected to continue raising interest rates this year, but may now cut them to revive the economy.

AT LONG LAST, there’s some good news for mortgage holders – with the suggestion that the European Central Bank may cut its interest rates by as much as 0.5 per cent in the coming year.

Goodbody Stockbrokers predicts that the ECB’s main rate – which had been rising slowly this year, and which was expected to rise further before 2012 – will instead be lowered in a bid to revive a flagging economy.

Inflation within the Eurozone was falling contrary to expectations, it said, meaning that further increases to the ECB’s interest rate would be counterproductive – and with the European recovery appearing to flag, the main interest rate would probably fall.

“Although Irish bonds have performed well in recent weeks and Italian and Spanish bond yields have fallen from their highs, the situation at a sovereign debt level is still very uncertain and continues to impact the banking sector across the bloc,” economist Dermot O’Leary wrote.

A cut in ECB rates would have an immediate impact on the monthly repayments for hundreds of thousands of struggling Irish mortgage holders, whose tracker mortgages are directly tied to the ECB’s main rate.

Other customers on variable rate mortgages would probably see the savings passed on by banks within weeks of rates being lowered, with lenders now forced to pass on whatever savings they can in a fiercely competitive market.

O’Leary warned, however, that a reduced rate would also be a sign of lower global economic growth, which in turn would have a negative impact on an export-led Irish economic recovery.

Read: Govt rules out blanket debt forgiveness – but Noonan says banks can write off mortgages >

More: One in 14 mortgages in 90 days’ arrears >

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