Business groups, trade unions and politicians have warned of increasing hardship facing companies and households in the wake of today's interest rate hike by the European Central Bank (ECB).
The ECB raised interest rates by a quarter percentage point to 1.25 per cent as it looks to address concerns about rising inflation across the euro zone.
The move is the first of several anticipated over the next 12 months and will mean higher mortgage costs for roughly three-quarters of Irish homeowners.
Chambers Ireland said although the ECB move was a bad blow for businesses and consumers, the Government could act to cut costs, improve competitiveness and soften the impact on the economy.
"The Government can drive the Croke Park Agreement forward and implement other cost-saving measures immediately," said chief executive Ian Talbot, adding the unions needed to "step up and play their part in pro-active engagements".
In a statement, a spokesman for the Irish Congress of Trade Unions said: “With ongoing rises in oil and food prices, inflation is now taking strong hold in Ireland. In that context today’s interest rate rise by the European Central Bank is very unwelcome and is going to result in extra hardship for people all over the country."
"Working people are being squeezed on too many fronts. There is a limit to the burden of austerity that any society, or household, can tolerate,” economic adviser Paul Sweeney added.
The Professional Insurance Brokers Association said the rise was the start of a new upward cycle.
Rachel Doyle, director of PIBA Mortgage Services, noted the only mortgage holders left untouched will be fixed rate mortgage holders. “Those who took advice to fix for longer terms of five years or more, are now likely to see their decision bear fruit over the next couple of years,” Ms Doyle said. "Fixed rates for those wishing to change now are already on the way up with some lenders even having suspended fixed rates. However, there are still some options open to those wishing to fix."
Marie Diron, a senior economic adviser at Ernst & Young, said higher interest rates would only prolong the housing and construction sector crisis. "The rate increase is probably also aimed at preserving the ECB's credibility as a central bank focused on keeping inflation low. We think that tightening monetary policy already is a mistake," she said.
Fianna Fáil TD Michael McGrath called on the Government to clarify if it would now honour a programme for government commitment to force banks not to pass on a 0.25 per cent rise to homeowners. "Now that thousands of homeowners, already under increasing pressure to meet their repayments, are faced with an interest rate hike, it is time for the Government to come clean and tell people whether this promise will be kept," the party's spokesman for financial sector reform said.
Sinn Féin finance spokesman Pearse Doherty today warned the "one size fits all" move by the ECB would not help the Irish crisis.
“With over 40,000 people in mortgage arrears for in excess of three months, today's decision will result in more mortgages and more people coming under pressure. But there is nothing forthcoming," he said. "Although today’s interest hike by the ECB was flagged four weeks ago, this Government has no plans to deal with this personal debt crisis.
"While it [the ECB rise] may benefit the larger European states, this is not the course of action best suited for Ireland at this time," Mr Doherty added.
