Will interest rates drop?

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elki

Registered User
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I know there is a lot of speculation over interest rates and the current thinking is that the ECB willl raise them another 2-3 times over the next while. In the dilemma now of fixing or continuing on the variable rate. Switching to a 3yr fixed or a 5 yr fixed will cost me approx an extra 110/130 euro per month. I cant believe that interest rates will rise to match that. (my mortgage currently at 209K @3.7% variable rate)

However my real question is, will interest rates drop again or will they continue to rise from this point? I know there is no real answer to this but would welcome some opinions! Thanks
 
What rate are you getting for the 3 year fixed? Based on the repayment increase it seems high. First Active have a 3 year fixed at 3.9, that's not much more than your current 3.7 variable. It's just one example so shop around for the best rate or you could switch to a tracker.

My guess is that rates will continue to rise over the next 18 months and will probably remain there for the following year at least. Inflation has pulled well ahead of the ECB stated target ''of close to but just below 2.0 percent''. This and the Europe wide credit boom all points to the fact that the era of 2 percent interest rates is over. If over the next two years Europe i.e. Germany starts to experience sustained growth above 2 pecent then I think rates will settle at the more 'historical' level of 3.5 to 4 percent.

As I say that is guess work; as is anything written by the 'experts'.
 
Well if you believe that the Bond markets are a good indicator of future interest rates, you should check out the yield on 5 and 10 year Euro Bonds.
 
Read the many other fixed versus variable/tracker discussions on the site. Only fix if you need to and not in an attempt to save money.
 
I can't believe my eyes. The IMF is articulating what I've suspected for years now and why I've felt interest rates will have to go far higher than anyone currently expects. Ultra low rates has and is pulling up the prices of everything, including oil prices. The ultra low rates 'experiment' of Greenspan and co. has created an inflationary monster. The next recession might be worse than even I expect.
 
Very interesting read and if the outcomes it recommends actually are implemented it will really throw the cat among the pigeons. The excessive liquidity that central banks (mainly the Fed) have pumped into the market has allowed a massive asset bubble (namely housing) to occur which could have serious consequences for the economy as a whole (Friends First report of potential dangers from housing correction). Unfortunately no heed will be paid to this report until interest rates go up.

Could we see ECB rates of 6-7% in a 24-36 month timeframe?
 
no way rates will hit 6+% in next 36months ,Eu economy would be put into a massive recession but ,maybe eu leaders want a recession that could lead to a reform of the rigid labour laws in mainland europe and in long run making the economy stronger...mmmm ;)
 
bearishbull said:
no way rates will hit 6+% in next 36months ,Eu economy would be put into a massive recession but ,maybe eu leaders want a recession that could lead to a reform of the rigid labour laws in mainland europe and in long run making the economy stronger...mmmm ;)
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The ECB's #1 prority is maintaining the integrity of the euro-- inflation is like cancer for paper currencies. Go read the Monthly Bulletin for March on www.ecb.int. Read the editorial and look at the charts on page S-39. Rates are going MUCH higher from here.

Anyone here old enough to remember what stagflation is like?
 
Anyone who thinks the ECB will choose economic growth over price stability needs to read Chp3 of this... page 42 should suffice.

http://www.ecb.int/pub/pdf/other/monetarypolicy2004en.pdf

If price stability were to be sacraficed to prevent a recession, not entirely beyond the realm of possibility, I reckon the ECB would have to be closed down.
 
walk2dewater said:
I can't believe my eyes. The IMF is articulating what I've suspected for years now and why I've felt interest rates will have to go far higher than anyone currently expects. Ultra low rates has and is pulling up the prices of everything, including oil prices. The ultra low rates 'experiment' of Greenspan and co. has created an inflationary monster. The next recession might be worse than even I expect.
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Oil nudged up to $63 in NY yesterday. Whilst the ultra low rates of the past few years have indeed elevated spending to new levels their report fails to mention the elephant in the living room... inevitable supply contrasts and contraction as the world's oil production peaks in the coming years. Raising interest rates to reign in demand to match supply is fine if supply remains static or increases but what if supply begins to fall on a year-on-year basis of 2% as is predicted. Competing demand for a diminishing resource resulting in uncontrollable inflation? How high could interest rates possibly go then?

 
There are so many moving parts to this that I don't think anyone really understands whats going on. We are in uncharted territory. My gut feeling remains that the ultra-low interest rate experiment will end up causing a major depression/recession/crash (call it what you like), real negative rates has proven highly seduction, addictive to the common man, and has made us borrow from the future excessively. Payback is a bitch.
 
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?

 
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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If we exit the euro and go back to punts Irish debt will still remain denominated in Euros. If we exit the EMU we would have to jack up rates to keep the New Punt from dropping like a rock. Or if we let the New Punt devalue against the euro all that massive euro debt would cripple irish debtors. I'm afraid there's no getting out of having to pay it all back AND at whatever interest rate Frankfurt says.
 
walk2dewater said:
If we exit the euro and go back to punts Irish debt will still remain denominated in Euros. If we exit the EMU we would have to jack up rates to keep the New Punt from dropping like a rock. Or if we let the New Punt devalue against the euro all that massive euro debt would cripple irish debtors. I'm afraid there's no getting out of having to pay it all back AND at whatever interest rate Frankfurt says.
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Similar argument has been used against the Italians leaving the Euro and devaluing the new Lira - the rise in their public debt would bankrupt the country.
 
walk2dewater said:
If we exit the euro and go back to punts Irish debt will still remain denominated in Euros. If we exit the EMU we would have to jack up rates to keep the New Punt from dropping like a rock. Or if we let the New Punt devalue against the euro all that massive euro debt would cripple irish debtors. I'm afraid there's no getting out of having to pay it all back AND at whatever interest rate Frankfurt says.
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Agreed, I couldn't see how exiting the Euro would be of any benefit regardless of what's at stake.

It's not going to have a pretty ending is it... unless you believe in NCB's ideal world scenario where reality is thrown out the window ;)

 
ivuernis said:

It's not going to have a pretty ending is it... unless you believe in NCB's ideal world scenario where reality is thrown out the window ;)

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About 95% of people will choose to believe the NCB however and will get burned unfortunately, but alot of powerful figures will make a great deal of money along the way.
 
beattie said:
About 95% of people will choose to believe the NCB however and will get burned unfortunately, but alot of powerful figures will make a great deal of money along the way.
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As is always the way I suppose... a small few will get rich while the rest will get shafted before they know it's even happened.

Where has common sense gone? Marx said "Religion is the opiate of the masses"... seems like blind faith in unbounded growth is our drug of choice these days.

 
The drug is money, other peoples, loaned at ridiculously low rates.
 
beattie said:
Very interesting read and if the outcomes it recommends actually are implemented it will really throw the cat among the pigeons. The excessive liquidity that central banks (mainly the Fed) have pumped into the market has allowed a massive asset bubble (namely housing) to occur which could have serious consequences for the economy as a whole (Friends First report of potential dangers from housing correction).
Do you think housing is the only asset bubble out there? Or do you think the markets are also overvalued? Its been interesting to see places like Iceland and Dubai sliding as the cost of borrowing goes up. The gamble on emerging markets might be slowing down but will it be the only one affected? How much of the current market highs in more established areas (the ISEQ, the Eurostoxx, commodities) are being fuelled by cheap borrowed money chasing market appreciation? Are we at risk of a big market correction?

And, more importantly, where should we be putting our money? Gold? Oil?
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