The ECB is widely expected to cut rates on Thursday at a scheduled meeting of its governing board. A rate cut of a quarter of one percent would bring the rate for the ECB’s main refinancing operation – a reference for Irish tracker mortgages – to 2.15pc, a level last reached in late 2022.
Traders are currently placing a 96pc chance on cut on Thursday, which will be the eighth cut since last June to the bank rate, currently at 2.25pc.
Consumer prices rose 1.9pc in the year to the end of May, slowing from an inflation rate of 2.2pc in April.
Excluding volatile items like food and energy inflation moderated to 2.3pc, while pressures in the closely watched services sector cooled markedly. It’s the first time in eight months and only the second since mid-2021 that headline inflation hasn’t exceeded the target.
Inflation had spiked to 10.6pc in October 2022. Due to the uncertainty over how the global trade situation will evolve, the ECB will provide scenarios alongside its quarterly projections on Thursday. In March, it saw inflation slowing to 1.9pc in 2026 and 2pc and 2027, from 2.3pc this year.
The strengthening of the euro, as the dollar has fallen, combined with softer energy costs have helped ease prices more quickly than many had expected. On Tuesday Bank of Ireland said it is cutting interest rate paid to savers on 12 and 18-month term deposits by 0.25pc from Thursday, June 5th.
Customers who are in the process of opening new 12- or 18-month fixed-term deposit accounts can still avail of the current rates if they open their account by the close of business on 4 June, the bank said.
It will take the interest earned for locking into the bank’s Advantage 12 Month Fixed Term account to 1.74pc. The interest earned for locking into the Advantage 18 Month Fixed Term account will fall to 3.36pc (an annualised rate of 2.24pc).
Bank of Ireland said the rate reduction will not affect its other savings accounts, including SuperSaver, the bank’s most popular choice for new regular savings, which continues to offer a 3pc AER (Annual Equivalent Rate) for 12 months.
Savers who are already locked into fixed-term deposit account will continue to earn interest at their original rate until the end of their term.
The move comes ahead of an expected European Central Bank rate cut in Thursday, which will be the eight in succession.
The ECB has lowered interest rates by a cumulative 1.75 percentage points in a year in a bid to calm inflation. In the same period Bank of Ireland, headed by CEO Myles O’Grady, has reduced its 12 and 18-month term deposit rates by a total of 0.75pc including the latest cuts.
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