Pressure on ECB to cut rates again as inflation falls to a record low

PRESSURE for another cut in eurozone interest rates has intensified after a set of figures showed inflation falling to a record low.

The governors of the central banks of the 18 countries – it was 17 members until January 1 whenLatvia joined – that are members of the eurozone meet tomorrow, with another interest rate cut likely to dominate the agenda.

An immediate reduction is not expected to be announced at the meeting of the European Central Bank (ECB), but the governors could signal a lowering of the rate in the coming months.

The ECB surprised the markets when it reduced its core interest rate last November.

About 375,000 holders of tracker mortgages gained from that. It meant a saving of about €30 a month for a mortgage holder with a €250,000 home loan.

That cut was prompted by lower-than-expected inflation.

Now the latest figures on eurozone inflation have shown that price rises are so muted that there is a risk of damaging deflation taking hold.

The EU’s statistics office Eurostat said inflation across the 17 EU countries that use the euro fell to 0.8pc in December.

This was down from 0.9pc the month before.

The ECB is tasked with setting monetary policy to keep price inflation just below 2pc.

And the core rate, which excludes energy, food, alcohol and tobacco, fell to an all-time low of 0.7pc.

That may increase concerns that the eurozone may face a period of deflation, a protracted fall in prices that chokes off consumer spending and business investment.

Juliet Tennent, an economist with Goodbody Stockbrokers, said low inflation would be a worry for the ECB.

“The latest inflation figures leave the door open for further action from the ECB, either a cut in the benchmark rate or a cut in the deposit rate,” she said.

Economist with KBC Bank in Dublin, Austin Hughes, said there was now a threat of deflation, a situation that was economically damaging because prices would keep falling.

SOURCE-IRISH INDEPENDENT