Interest rates hit an all time low

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Interest rates hit an all time low

News Article Date: Wednesday 11th of March 2009

The European Central Bank (ECB) followed the example set minutes earlier on Thursday afternoon by the Bank of England by announcing a half a percent interest rate cut in its now seemingly perpetual bid to kick-start the ailing Eurozone economy. The latest cut, which has seen the base rate fall to a record low of 1.5 percent, is the fifth to be announced in the space of six months – and analysts are forecasting the rate to fall below 1 percent by the summer. Home owners can look forward to more disposable income once they have made their mortgage repayments following yet another reduction in interest rates. This latest cut will see home owners with a mortgage of €150,000 over 30 years pay around €250 less a month than they were as little as six months ago. The first of the interest rate cuts came into force last October, when it was at a high of 4.25 percent. However, home owners with mortgages associated to the Euribor lending index will only feel the first effects of the latest rate cut in April, though some might have to wait until September, depending on the contracts they signed with banks. On Thursday, Euribor rates all fell to below two percent for the first time, with the Euribor three-month index dropping to 1.757 percent, while the six-month rate, the main index for home mortgages went down to 1.869 percent. Analysts, who widely forecast this week’s rate cut, said that ECB President Jean-Claude Trichet was likely to reduce the benchmark rate again in the next quarter, despite his public concerns that low interest rates could be laying the foundation for future crises, as any future hikes could force the housing market into further turmoil. Despite huge reductions in repayments, Portuguese banks, have been pushing up the ‘spreads’ or profit margins on the Euribor lending index. While spreads of between 0.6 percent and 0.9 percent were common at the turn of the year, customers with strong credit histories applying for new loans are being offered previously unheard of spreads in the region of 1.5 percent. Due to this situation, the CDS-PP party has summoned the Government and the Bank of Portugal to explain to Parliament why interest rates are falling and banks profit margins on these loans are increasing. Portuguese officials have expressed optimism this year that recent and pending interest rate cuts would actually result in 2009 being a prosperous year for most home owners. “Those who keep their jobs in 2009 can look forward to greater earnings and even more buying power”, the Governor of the Bank of Portugal said, adding that the disposable income of families would rise considerably in the coming year. Portugal entered recession after the final quarter of 2008 reported “an extremely negative performance”. Negative growth will persist in 2009, the Bank of Portugal has said, forecasting the economy would shrink by 0.8 percent, identical to the figure during the crisis back in 2003. The economy will only recover in 2010, with growth similar to that recorded last year. But the coming year is forecast to report growth in the real income of consumers as high as 1.6 percent, which is due to the plummeting inflation rate, expected to fall to as low as one percent. The European Union inflation rate sat at 1.2 percent last month, after being 3.1 percent at the beginning of 2008.rt, which Durão Barroso has praised for being “rich and balanced”, though opposition to increased supervision of banks and caps on bonuses across the union is expected to be muted given the extent of the current crisis and growing certainty in the evidence of how it was caused and by whom.
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