Draghi refuses to rule out fresh rate cut in new year

TRACKER mortgage holders could benefit from a new cut in interest rates in the new year as Europe grapples with damaging deflation.

The European Central Bank (ECB) left its key interest rate at its record-low of 0.25pc yesterday when it met for its final policy meeting of the year.

But economists said there could yet be another cut in rates in 2014.

This was something ECB President Mario Draghi did nothing to deflect.

"We may experience a prolonged period of low inflation to be followed by a gradual upward movement ... later on," Mr Draghi told a news conference. "We are monitoring developments closely and are ready to consider all available instruments."


Every cut in ECB rates has to be passed on to the 375,000 homeowners who have tracker rate mortgages.

Each 0.25pc reduction in the eurozone rate saves around €15 in monthly repayments on every €100,000 borrowed.

However there is a growing gap between those on tracker mortgages and those on variables, with banks free to push up variable rates to recoup money lost on trackers.

Economists said European central bankers could not rule out pushing the zone's key interest rate to an unprecedented 0pc next year.

Although there is no threat of inflation, the eurozone economy is under threat from a damaging deflationary spiral which would smother any chances of growth.

The decision to hold the main refinancing rate at a record low was widely expected after recent figures showed inflation was just 0.9pc in November.

Unemployment has also fallen slightly.

Fresh forecasts from ECB staff predicted inflation would average just 1.1pc next year and 1.3pc in 2015 – well below the ECB's target of 2pc. Mr Draghi said the risk was that economic growth would be lower than most economists were predicting for the European economy.

KBC Bank economists Austin Hughes said the ECB was open to cutting interest rates to 0pc, but it was hoping a pick-up in economic growth would mean it does not have to do this.

Mortgage broker body the Professional Insurance Brokers Association (PIBA) said the likelihood was that eurozone rates would remain low for a number of months.


The issue now was whether banks would push up variable rates again, PIBA's Rachel Doyle said.

Meanwhile, the Central Bank said that it has set domestic banks a target to have offered "sustainable solutions" with three out of four customers who are three months or more in arrears by the end of next summer.

The regulators said the banks should have concluded solutions with one third of arrears customers by the end of June.

The latest figures for July to September period of this year shows that 141,520 mortgage accounts for homes were behind in their repayments.

The number of accounts in arrears for more than 90 days at the end of September had risen to 99,189.

The increase of 1,315 was driven entirely by accounts that are behind by over two years or more.

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