Will interest rates drop?

My humble advice to anyone who wouldn't class themselves as a sophisticated or experienced investor is to pay down debt, sell your non-core property(s), then save up cold hard cash and stick it in an inflation-proofed or guaranteed deposit product, in that order

Now is not the time to experiment if you have serious money, in my experience you only learn how to invest for yourself the hard way. Do not f*ck around with any nest egg greater than your annual gross salary
 
walk2dewater said:
My humble advice to anyone who wouldn't class themselves as a sophisticated or experienced investor is to pay down debt, sell your non-core property(s), then save up cold hard cash and stick it in an inflation-proofed or guaranteed deposit product, in that order

Now is not the time to experiment if you have serious money, in my experience you only learn how to invest for yourself the hard way. Do not f*ck around with any nest egg greater than your annual gross salary
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What is that ?

And all because the government did nothing to keep speculators/investors out of the market.If prices had remained at reasonable levels at least the debt would have been somewhat serviceable.
 
ivuernis said:
David McWilliams, in his column in yesterday's Irish Indo, speculated that if the worst came to the worst and the Irish banking system was threatened with collapse as a result of debt defaulting by borrowers in the event of rising interest rates on the back of a resurgent German economy that the government may be faced with no other alternative but to withdraw from the EMU in order to regain control over Irish interest rates.

I know we can't bail out the banks like we did before because of EU regulations but I can't really see this happening even in a worst case scenario, or how it could benefit the country from pulling out of the Euro even if it prevented the banks from going bust? Couldn't they just let the bank suffer the consequences of the their lax lending policies? It would be chaotic but wouldn't other banks that are not so exposed to such a bust be able to enter into the Irish market?

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As an alternative to bailing out the banks, which is no longer permitted by EU law, and since we can't control our own interest rates, would it be an alternative for the government to simply increase tax relief on mortgage interest to the point where they are effectively bailing out the banks by maintaining a situation where Average Joe can continue to afford his repayments?

Does tax relief constitute public spending and therefore contribute to inflation?
 
conor_mc said:
As an alternative to bailing out the banks, which is no longer permitted by EU law, and since we can't control our own interest rates, would it be an alternative for the government to simply increase tax relief on mortgage interest to the point where they are effectively bailing out the banks by maintaining a situation where Average Joe can continue to afford his repayments?

Does tax relief constitute public spending and therefore contribute to inflation?
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The problem with this is that if property was to go belly up due to interest rates and property sales fell, the government would be losing a significant amount of its income which is currently derived from stamp duties etc. Where would they get the money to give such a selective tax cut to home-owners? Not to mention how unequitable that would be for those who did not have a mortgage.
 
conor_mc said:
As an alternative to bailing out the banks, which is no longer permitted by EU law, and since we can't control our own interest rates, would it be an alternative for the government to simply increase tax relief on mortgage interest to the point where they are effectively bailing out the banks by maintaining a situation where Average Joe can continue to afford his repayments?

Does tax relief constitute public spending and therefore contribute to inflation?
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In this case it would.

In this scenario the textbooks would say that the govt should be running a massive budget surplus in order to take money out of the system whilst times are good and release it back in during any downturn in the form of infrastructural spending.
 
gearoidmm said:
The problem with this is that if property was to go belly up due to interest rates and property sales fell, the government would be losing a significant amount of its income which is currently derived from stamp duties etc. Where would they get the money to give such a selective tax cut to home-owners? Not to mention how unequitable that would be for those who did not have a mortgage.
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Yep, can see that point, but wouldn't the same apply to bailing out the banks? Surely it'd be more equitable to help out Average Joe than bail out Irish banks to the tune of a few hundred million each, where Average Joe still loses his house because he can't afford his mortage repayments?

It's a simplistic view, I'll admit, but due to the lack of control over interest rates, surely it's unique(ish) in history, cretainly in Irish history?
 
conor_mc said:
It's a simplistic view, I'll admit, but due to the lack of control over interest rates, surely it's unique(ish) in history, cretainly in Irish history?
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Were interest rates not shared with the UK prior to the punt's independence in the late 1970's?
 
Neffa said:
Were interest rates not shared with the UK prior to the punt's independence in the late 1970's?
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In theory they should be close as with no currency risk one would expect the Irish banks and speculators etc to borrow from the UK if rates were cheaper there thus driving down the Irish rate to similar levels.

However back then we had exchange controls, I'm not sure if they applied to sterling, but if they did this could have allowed an interest rate differential by restricting access to cheaper money in the UK.
 
So where do people think ECB rates will be by the end of the year? A good while ago on this board I went for probably 3.25%, possibily 3.5%. Leaning more towards 3.5% now with the ECB moving towards an increase every 2 months from May.

This isn't simply a stick your finger in the air kind of thing. The ECB by their own admission want to be predictable, so it should be a relatively straightforward matter to predict what the rates will be. No more of the 'oh my God, I can't believe my mortgage has suddenly gone up, why didn't anyone tell me this would happen!'.

Any FX traders out there want to tell what the market has factored? I know there are percentages attached to this sort of thing.
 
I don't think they'll be too hasty by raising on a 2-monthly basis. I think they'll stick to a 3-month cycle as they normally do. This would still give a rate of 3.25% by the end of 2006 and well on the way to 4% during 2007.
 
Howitzer said:
Any FX traders out there want to tell what the market has factored? I know there are percentages attached to this sort of thing.
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From Bloomberg.com

"Traders raised bets the ECB will lift rates to 3.25 percent this year, futures prices show. The yield on the three-month Euribor contract due December 2006 rose to 3.455 percent yesterday.
The contracts, traded electronically on the London International Financial Futures Exchange, settle to the three- month euro interbank offered rate, which has averaged 0.16 percentage point over the ECB rate since 1999."

This is interesting because up until the Ifo data came out this week on German business confidence, the markets had priced in a hike to just 3%. That said, the European Parliament is preparing a draft resolution condemning the ECB for raising rates the way it is.
 
Interesting to note that Inflation in the Eurozone has dropped to 2.2% for March, down from 2.3% in February and 2.4% in January. Although it is still above the 2% target rate, the reduction may sway the ECB from rising rates every 2 months. I think 3.25% by the year end still looks the most probable with the next rate rise in May and then every 3 months.
 
power1 said:
Although it is still above the 2% target rate, the reduction may sway the ECB from rising rates every 2 months.
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Maybe I'm reading too much between-the-lines in the ECB's bulletins and public comments by it's members.. but I do believe that the line "we're raising rates to combat inflation" is only partially true.. I feel it is a partial-cover-story (which is more easible digestable by the media & the general population) used by the ECB, and that one of their main reasons for raising rates is to combat the 'liquidity bubble' that some of it's members have aluded to.
 
soma said:
Maybe I'm reading too much between-the-lines in the ECB's bulletins and public comments by it's members.. but I do believe that the line "we're raising rates to combat inflation" is only partially true.. I feel it is a partial-cover-story (which is more easible digestable by the media & the general population) used by the ECB, and that one of their main reasons for raising rates is to combat the 'liquidity bubble' that some of it's members have aluded to.
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Bingo.
But, from my read of [the latest docs on] their website I don't think there's much cover up. It appears pretty black and white to me. But then again I spent 6yrs in university learning all the lingo.
 
walk2dewater said:
Bingo.
But, from my read of [the latest docs on] their website I don't think there's much cover up.
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To be honest, that's as good as burying those documents 12 feet under ground cos:

1) The average punter's financial education is very very poor and they're highly unlikely to be perusing the ECB's website.
2) Investigative/non-vested interest journalism is very rare these days.
 
yes ,headline consumer price inflation isnt only reason for rate rises ,it wells know the euro bankers are unhappy about asset price inflation in europe.france spain etc have had large house price rises due to in the opinion of the bankers easy credit/negative real interest rates.
 
The business section of Dunphy's show this morning commented that the FT are running a story that there is a slight chance that rates could go up on Thursday.
 
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