The European Central Bank (ECB) is expected to raise interest rates again at a meeting of its Governing Council in Frankfurt today.
Markets are expecting a further 0.25% rise in rates, as efforts continue to bring inflation in the euro area under control.
If rates do increase as expected today, it would be the ninth hike since this day last year, when the long period of record low rates first started to come to an end.
Over the intervening 12 months, the main ECB interest rates have risen by 4% as the bank battles to bring inflation back down to its target of 2%.
Last month euro zone inflation stood at 5.5%, down from 6.1% in May.
The ECB began increasing rates on this day last year
Food, alcohol and tobacco had the highest annual rate of inflation in June at 11.6%, followed by non-energy industrial goods at 5.5%, services at 5.4% and energy.
While a further 25bps increase is expected today, bringing the main ECB deposit rate to 3.75%, all eyes will be on what indications the Governing Council gives about what more, if anything, it intends to do with rates in September.
While inflation still remains unacceptably high, recent purchasing managers index data shows that economic activity in the eurozone has slowed, pointing to heightened risk of recession.
Some analysts expect a more dovish approach from the bank and do not expect a strong confirmation or dismissal of plans for a further hike at the next meeting.
“In many respects the trajectory for rates at the subsequent meetings will be of much greater interest,” said Des Lawrence, Senior Investment Strategist, State Street Global Advisors.
“Higher inflation forecasts and a recognition that wage pressures are becoming ‘an increasingly important source of inflation’ underline the increased likelihood of a further rate hike at its September meeting,” he added, referring to earlier ECB comments.
“We would not regard a further 25 basis point rate hike at the September meeting as unreasonable given those remarks and inflation backdrop. Beyond that we think there’s a good case in favour of holding policy rates steady at those levels for some time.”
ECB President, Christine Lagarde
A further rate increase of 0.25% today will lead to higher borrowing costs for mortgage holders.
According to Moneysherpa.ie, it will take the average tracker mortgage rate from just 1.15% in June last year to 5.4%, resulting in the cost of an average tracker increasing by €3,182 per year and €34,994 over the full mortgage term.
Mark Coan, founder of Moneysherpa.ie, said it is not only the 130,000 remaining tracker mortgage customers who will be impacted, but also 160,000 variable mortgage holders and those with short-term fixed rates, who will see rates move above 5%.
“Average tracker rates are now hitting 5.4%, with variable rates also heading in a similar direction,” he said.
“The good news though is customers can still fix on long-term fixed rates of 3.9%.”
But any changes today will also ramp up pressure on banks and other financial institutions to up the rates they offer savers on deposit products.