ECB Hikes Key Rates to 2.25% and 2.4%; Second Increase Expected by September

The European Central Bank (ECB) has increased its key deposit rate by a quarter of a percentage point to 2.25% and its main lending rate to 2.4%. This marks the first increase in nearly three years.

For approximately 120,000 tracker mortgage holders, this 0.25 percentage point rise will add about €14 to monthly repayments for every €100,000 outstanding. A €200,000 mortgage will see an increase of nearly €30 per month starting with the July repayment. While this is a financial burden, tracker holders benefited from exceptionally low rates for over a decade, and multiple rate cuts since 2023 have eased recent pain from hikes after Russia invaded Ukraine.

The ECB’s decision aims to combat inflation, which is around 3.2% across the EU, exceeding the 2% target. ECB head Christine Lagarde did not rule out further increases, stating future decisions depend on inflation outlook and economic data. Davy investment strategist Stephen Grissing suggests another similar increase is likely before year-end, with market consensus pointing to a second hike in September. He noted the ECB was criticized for reacting too slowly in 2022 when inflation was above 8%.

Mortgage holders, especially those with tracker mortgages, are advised to review their options promptly as the window for securing better rates is closing. Historically, Irish banks have been slow to pass on ECB rate increases to savers, despite over €170 billion in deposits.