HomeBussinessEuropean Central Bank will cut interest rates next month, says McGrath

European Central Bank will cut interest rates next month, says McGrath

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Finance Minister Michael McGrath said he expects the European Central Bank to start cutting rates at its next meeting on June 6 which would mark the bank’s first rate reduction since its aggressive campaign launched almost two years ago to curb soaring inflation.

Following new inflation figures released this week showing further reductions in annual price levels, Mr McGrath told reporters on Friday: “The progress that we are making in Europe when it comes to inflation means that I do now expect that the ECB will begin to cut interest rates on the 6th of June.”

Mr McGrath added that a reduction would be “welcome news” for households and businesses, adding that the pass-through of the ECB’s decision will happen “very quickly” for those on tracker mortgages with other mortgage customers seeing these changes over some time.

“Based on everything that has been said by the Governing Council and the expectations of the market, I do now expect that we are at the peak of the interest rate cycle and that rates will start coming down from the 6th of June.”

Mr McGrath did not say how much he expects rates to fall, adding that ECB actions beyond June remain “less certain.”

The annual rate of inflation fell to 2.6% in April, according to the Central Statistics Office (CSO) as electricity and gas prices continue to decrease, however, core inflation continues to run higher.

Across the euro area, inflation decreased to 2.4%, according to most recent figures from Eurostat, with harmonised inflation figures for Ireland putting inflation at 1.6%. 

“Inflation has declined more quickly than we had expected,” chief economist of the ECB, Philip Lane said last week. “The next phase of the disinflation process is likely to be more gradual, with bumps in the road ahead.”

PTSB deposit rates

Meanwhile, PTSB announced several changes to its fixed-term deposit rates for all personal and business customers on Friday, including reductions in the interest charged on three-year fixed deposits.

From May 14, PTSB’s one-year fixed rate will increase by 0.75% to a “market-leading” 2.75%, with its six-month fixed rate rising by 0.25% to 2%. 

PTSB said the new rates are designed to attract customers looking for a higher rate of return on shorter terms, adding that there will be no changes to its 18-month or five-year fixed rates.

However, it said its new three-year fixed rate will decrease by 0.9% to 2.1% from next week, adding that it will continue to keep deposit rates under review.

Recently, Bank of Ireland raised its net interest income guidance amid doubts about the path of future interest rate cuts, with many forecasters now predicting the European Central Bank will be reluctant to move too quickly this year should stubborn inflation persist in the US.

Bank of Ireland’s revised expectations reflect recent forecasts by Deutsche Bank and Morgan Stanley, who now predict just three interest rate cuts this year.

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