July ECB Monetary Policy Meeting Update
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Tracker mortgage holders met the first reduction in the ECB refinancing rate in June with relief after 10 consecutive increases saw the refi rate rise from 0% to 4.75% before the June cut.
While the June cut of 0.25% was expected no rate cut was expected at today’s July ECB monetary policy meeting.
The ECB are going to be tentative and err on the side of caution when it comes to rate decreases. Their decisions are data driven and their focus is on inflation. Inflation is not where the ECB wants it to be.
Anyone hoping that the same pace and scale at which the ECB increased rates will be reflected in downward movement are unfortunately likely to be disappointed.
All eyes are now on September….
The ECB meet roughly every 6-8 weeks but have signaled its preference to make interest rate decisions at ‘forecast meetings’ which would be in September & December (and not July, Oct, Jan).
Analysts anticipate that two more cuts of 0.25% each are on the table this year in Sept and Dec.
Financial markets are pricing in 0.4% in total rate cuts until year end, leaving some uncertainty still re the Dec cut.
The ECB make data driven decisions, closely monitoring inflation and the impact of any rate cuts.
ECB’s Technical Adjustment in September
In March following an Operational Framework review the ECB Governing Council had advised that they were set to align their refinancing and deposit rates in September.
The review set out that the spread between the refinancing and deposit rates would be reduced to 15 basis points (0.15%) from 18th September.
Currently, the interest rate on the main refinancing rate is 4.25%, the interest rate on the deposit facility is 3.75% and the interest rate on the marginal lending facility is 4.50%.
This could result in a technical adjustment of 0.35pc which will benefit tracker mortgage holders who will see a corresponding reduction in their rate.
0.35% reduction would save c. €20 per month on every €100,000 owed.
What do analysts say about where the ECB rate could eventually settle?
Many market analysts feel that the ECB will adjust rates to within the 3pc range in the next 12 months.
It is always impossible to predict rates with total accuracy and so even the Economists and Analysts don’t know for certain.
The ECB will closely monitor the impact of any rate cut on inflation and have always been clear that bringing inflation to a rate of 2% is their unwavering goal.
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