THE IRISH and European economies will receive a boost today if, as widely expected, the European Central Bank cuts interest rates by a quarter of a percentage point to 0.75 per cent.
The move will be widely welcomed, coming just after the Central Statistics Office announced that unemployment hit an 18-year high in June.
The unemployment rate inched higher last month, rising to 14.9 per cent of the labour force, up from 14.7 per cent in May. This is the highest rate since March 1994, but still shy of the record figure of 17.3 per cent, reached in December 1985.
If ECB president Mario Draghi announces a rate cut at lunchtime today it will provide a shot in the arm for the European economy, and will reduce repayments for thousands of Irish people with tracker mortgages, which are tied to the central bank’s rates.
Analysts believe a cut of one quarter of a percentage point is likely, with a half point cut possible.
For every quarter of a point the ECB lowers rates, the monthly cost of servicing a €100,000 tracker mortgage declines by about €15.
This means that if the ECB implements a cut of 0.25 per cent, as it did on two separate occasions towards the end of last year, then the average tracker mortgage holder with an outstanding loan of €300,000 will see monthly savings of €45 from the beginning of August.
If the ECB were to go a step further and cut rates by half a point the average Irish tracker mortgage holder would be better off by €90 a month from next month.
If even the smaller cut is announced as predicted, then a person with a €300,000 tracker mortgage will be paying about €135 a month less compared with last September or a total saving of more than €1,600 annually.
Calls for an interest rate reduction have been rising in recent months as the euro zone economy has weakened.
Although financial markets have been considerably calmer since EU political leaders last Friday agreed a series of measures to address the sovereign debt crisis, the real economy continues to flag.
The latest figures from the Central Statistics Office show the number of people in receipt of unemployment benefit payments rose by 2,700 over the month.
The seasonally adjusted Live Register of benefit recipients stood at 440,600 in June, or almost 21 per cent of the labour force.
Although this was the third consecutive monthly increase in the number of people on jobless benefits, it remains below the all-time peak of just under 450,000, registered in September 2010.
The Live Register includes casual and part-time employees who are not formally considered jobless. These workers accounted for almost one in five people receiving benefits, or 88,465.
Long-term claimants – those on the register for more than a year – rose to account for 44 per cent of all claimants in June.
The Irish National Organisation of the Unemployed (INOU) described the figures as “extraordinary”.
“It clearly indicates the scale of the unemployment crisis facing this country and that the Governments responses to date are failing to work,” said INOU coordinator John Stewart.
Yesterday’s unemployment figures included new information on the number of people availing of State retraining and activation programmes.
In addition to those in receipt of unemployment benefits, an additional 76,589 people were on such programmes in May. This represents an increase of more than 10,000 on a year earlier. The increase was accounted for by new programmes rolled out after the Fine Gael-Labour Coalition came to power.
Before the ECB decision, the Government will attempt to raise money from private sources for the first time since being bailed out in 2010.
This morning, the National Treasury Management Agency will seek to borrow €500 million from private inverstors.
The auction will be watched closely across Europe. A success would raise the chances of Ireland exiting its bailout on schedule next year.