Gabriel Makhlouf, the Central Bank of Ireland's chief, has indicated that the European Central Bank (ECB) may be approaching the limit of its interest rate increases, despite acknowledging the possibility of further hikes to achieve the 2% inflation target. The ECB's cautious approach comes amid persistent above-target inflation rates and October's decision to maintain policy rates, reflecting ongoing concerns about core inflation remaining high.
Makhlouf's remarks follow a period of heightened attention on inflation and interest rates, with initial rate increases starting in mid-2022. The ECB has been closely monitoring the situation since June's review, noting that while inflation has slightly receded across various economies, it remains above the ECB's desired level. The full impact on borrower finances and broader economic demand is still being assessed, with early signs of stress appearing in some lending areas as borrowing costs rise.
In Ireland, many mortgage holders are shielded from immediate effects due to fixed-rate contracts, which adds to the uncertainty of future impacts. Despite economic slowdowns caused by prevailing conditions, growth continues within the Irish economy through modified domestic demand. The resilience of Irish households and businesses is bolstered by strong labor markets and substantial balance sheets.
Commercial real estate is feeling the pinch from both cyclical factors such as rising interest rates and structural trends like the shift towards remote working, which has reduced office space demands.
Both Makhlouf and ECB President Christine Lagarde have deemed discussions about a potential rate cut premature. This stance challenges market expectations that have bet on a rate cut as early as April. Lagarde has projected no imminent rate reductions for "the next couple of quarters," signaling that the ECB will maintain its data-driven decision-making process while adapting to global economic shifts that influence financial stability outlooks.
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