The European Central Bank (ECB) is set to raise interest rates today for the third time since November. The governing council of the bank meets in Madrid amid growing signs of economic recovery in the euro zone, write Jamie Smyth in Luxembourg and Marc Coleman
Data on retail sales across the euro zone released yesterday indicated a 1.4 per cent rise in April compared to March. It came on top of data released by Germany's economics ministry showing an improvement in the manufacturing sector of the euro zone's largest economy, as well as renewed growth in Europe's services sector.
Despite signs of economic strengthening, analysts stuck to predictions the ECB will raise rates by a quarter of a percentage point, rather than one-half per cent as recently speculated. "On balance, a quarter per cent rate is the most likely outcome. There is probably about a 20 per cent chance of a larger half per cent move," Irish Intercontinental Bank (IIB) economist Austin Hughes said yesterday.
The ECB has put up rates twice since November, by a quarter of a percentage point on each occasion. Each increase pushes up monthly repayments on a €100,000 mortgage by about €13.
Minister for Finance Brian Cowen, in Luxembourg for a meeting of finance ministers, downplayed the impact yesterday.
He also dismissed fears raised by a report showing first-time buyer couples spend one-third of their income on mortgages as "nothing new". "Thirty years ago, the range was between 25 and 33 per cent," he said. "The percentage of disposable income that has to go to that level of investment [ in residential housing] by most households is not a new phenomenon."