Mortgage borrowers face a further rise in interest payments in coming weeks following yesterday's decision by the European Central Bank (ECB) to raise interest rates.
Experts and Opposition spokespeople said the move would have a significant effect on consumers but while further increases are expected to follow, remarks yesterday by ECB president Jean Claude Trichet were interpreted as signalling a softening approach by the bank.
At a meeting in Paris yesterday, the governing council of the ECB decided to increase the key policy rate, the main refinancing rate, to 3.25 per cent. The quarter-point increase is the fifth since the ECB began its present round of increases last December and will bring mortgage rates to their highest levels since December 2002.
"There are some very interesting subtle changes in the text of Mr Trichet's explanatory remarks.
His reference to a 'progressive withdrawal of liquidity' has changed to a 'further withdrawal' and this is consistent with one further interest rate increase rather than a sequence of them," Austin Hughes, chief economist with Irish Intercontinental Bank, said yesterday.
The Economic and Social Research Institute scaled back its prediction for further interest rate increases last Monday.
It now predicts that rates will climb to 3.75 per cent by next summer, compared to a previous prediction of 4 per cent.
The Irish Financial Services Regulatory Authority said the monthly cost of repaying the typical mortgage payment would rise by €30 as a result of yesterday's increase.
"Since last November, monthly repayments on a €250,000 20-year mortgage have increased by over €155 each month.
This represents an 11 per cent increase in mortgage repayments," Mary O'Dea, spokeswoman for the financial regulator, said yesterday.
Ulster Bank economist Niall Dunne also said that the fact that variable and fixed rates were relatively close together might protect borrowers from the full impact of yesterday's move.
"I just think that this might encourage some of the lending institutions to refrain from passing on the full amount of the increase."
Labour Party finance spokeswoman Joan Burton criticised yesterday's decision as unnecessary.
"Given the recent recovery in European markets over the last year, it is difficult to understand why the ECB is continuing with this series of increases," she said.