PIBASure
Qq_arrow

Callback

News

Central Bank chief hints at 'measured' cuts by ECB – I Ind

04 November 2011

CENTRAL Bank governor John Hurley indicated yesterday that there may be more cuts in interest rates by the European Central Bank (ECB).

Mr Hurley, who is a member of the ECB's governing council, said any further rate reduction would be implemented in a "very measured way". Earlier this month, the ECB cut rates in the eurozone by 0.25pc to 1.25pc, with expectations now that rates will be cut again on May 7. Some economists feel there will then be a further cut in the summer.

Mr Hurley said: "There has been a cumulative reduction of 300 basis points in the key policy rate and, while the Governing Council is never pre-committed, I cannot exclude the possibility that the council may, in a very measured way, further reduce the main policy rate."

He also said in a speech to EU ambassadors to Ireland that the global economy was experiencing the deepest and most synchronised downturn for many decades.

He said that while a small improvement had been seen in some economic indicators internationally in recent weeks, any economic recovery may be rather gradual.

However, Mr Hurley said global inflationary pressures have moderated significantly since the middle of last year. Eurozone inflation has fallen to below 1pc from 4pc as recently as July due mainly to the sharp fall in oil prices. He said that policymakers have taken unprecedented steps to limit the impact of the current downturn, including financial sector intervention and monetary and fiscal policies.

He also said that they have been focusing on how to rebuild trust in the financial system. Meanwhile, Friends First economist Jim Power said at the weekend interest rates could come down by up to 0.5 percentage points by the summer.

Rates are then likely to stay at that level for about a year, Mr Power told the annual general meeting of the Irish League of Credit Unions. However, rates would be increased by the ECB at the first sign of recovery, he told the credit union members. And it is likely to be 2011 before there is any pick-up in the Irish economy, he said.

Homeowners

Mr Power also said he expects 250,000 homeowners to end up in negative equity this year.

Negative equity is where the value of a loan is greater than the value of the property the mortgage is secured on. Such a large number of householders experiencing negative equity would have huge implications for the repayment capacity of of households, he said.

The continued squeezing of traditional credit lines, by the likes of banks and building societies, would mean credit unions would play a more important role in funding consumers, Mr Power said in Killarney.