# How low with Euro Interest rates go?



## csirl (5 Feb 2009)

Anyone an opinion on how low the ECB will go?

US is almost at zero and UK is now at 1%.


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## Guest116 (5 Feb 2009)

Do a search, this has been discussed a few times.


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## Damian85 (5 Feb 2009)

Still at 2%. Although Trichet hasn't ruled out lower cuts in March


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## Joe Hill (6 Feb 2009)

My guess is down to 1.5% in March, and no more after that. Anything beyond that is pointless, after that quantitative easing will be the principal tool used.


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## dafmurray (4 Mar 2009)

Indications are still being given that a further half per cent cut is likely in June, following the ECB cut due tomorrow.  So far the cuts have occured 90% as predicted.  I think I saw an interview that indicated 1% was likely to be the final base rate...but the situation is changing so rapidly who honestly knows anymore.


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## UptheDeise (5 Mar 2009)

It will eventually go to zero has panic sets in. they shouldn't be lowering the rate at all. Lowered interest rates are the last thing we need.


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## chrisboy (5 Mar 2009)

UptheDeise said:


> It will eventually go to zero has panic sets in. they shouldn't be lowering the rate at all. Lowered interest rates are the last thing we need.




Its exactly what i need! Offsets my pension levy and wages levy, and whatever they're gonna throw at me in April. TBH, if they went back to the previous levels i'd be handing the house keys back at this stage..


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## UptheDeise (5 Mar 2009)

chrisboy said:


> Its exactly what i need! Offsets my pension levy and wages levy, and whatever they're gonna throw at me in April. TBH, if they went back to the previous levels i'd be handing the house keys back at this stage..


 

With a lower interest rates saving money in the banks will not be an option for many. The less cash a bank has the less credit they can offer to businesses. They go under unemployment goes up.


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## chrisboy (5 Mar 2009)

UptheDeise said:


> With a lower interest rates saving money in the banks will not be an option for many. The less cash a bank has the less credit they can offer to businesses. They go under unemployment goes up.




I'm afraid i've given up worrying about the bank's cash. All i care about is having enough money to put a roof over my kids' heads..


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## Sunny (6 Mar 2009)

UptheDeise said:


> With a lower interest rates saving money in the banks will not be an option for many. The less cash a bank has the less credit they can offer to businesses. They go under unemployment goes up.


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## Cayne (6 Mar 2009)

Sunny said:


>


 
The Waterford school of economics - put interest rates up as inflation is going down and all this in a recessionary period. Take more money out of the economy so people have less to spend! 

Interesting take on how the economy should handle the current crisis.


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## Sunny (6 Mar 2009)

Cayne said:


> The Waterford school of economics.


 
Was wondering. Martin Cullen for Minister of Finance then!


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## Purple (6 Mar 2009)

Cayne said:


> The Waterford school of economics - put interest rates up as inflation is going down and all this in a recessionary period. Take more money out of the economy so people have less to spend!
> 
> Interesting take on how the economy should handle the current crisis.



The idea of low interest rates is to stimulate borrowing by making the cost of credit cheap. It also reduced mortgage repayments which encourages spending and makes saving less attractive which encourages investment. That’s the way it normally works however since the banks have no cash to lend conventional stimuli may not work, that’s why governments are recapitalising the banks.


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## Sunny (6 Mar 2009)

Purple said:


> The idea of low interest rates is to stimulate borrowing by making the cost of credit cheap. It also reduced mortgage repayments which encourages spending and makes saving less attractive which encourages investment. That’s the way it normally works however since the banks have no cash to lend conventional stimuli may not work, that’s why governments are recapitalising the banks.


 
True but saying higher interest rates during the current problems means more savings which means that banks have more money to lend to business and will be good for our economy is bordering on insane!


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## UptheDeise (6 Mar 2009)

Sunny said:


> Was wondering. Martin Cullen for Minister of Finance then!


 
What a ridiculous statement by yourself and cayne. The only way we can get this economy up and running is to allow for real credit to play its part. This credit can only come from people savings. Also lowering the interest rates will adversely affect those people who depend on the savings as a source of income - pensioners in particular.


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## Sunny (6 Mar 2009)

UptheDeise said:


> What a ridiculous statement by yourself and cayne. The only way we can get this economy up and running is to allow for real credit to play its part. This credit can only come from people savings. Also lowering the interest rates will adversely affect those people who depend on the savings as a source of income - pensioners in particular.


 
I agree with your second point about pensioners and savings. 

I am sorry but your theory about high interest rates during a recession complete and utter tripe. How can credit only come from people saving? If people are doing nothing but saving and making higher debt repayments, what do they have left to spend with those businesses that you want the banks to lend to? Banks have other sources of funding other than customer deposits. The problem with banks isn't funding. Its capital and customer deposits don't help on that score.


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## UptheDeise (6 Mar 2009)

Sunny said:


> I agree with your second point about pensioners and savings.
> 
> I am sorry but your theory about high interest rates during a recession complete and utter tripe. How can credit only come from people saving? If people are doing nothing but saving and making higher debt repayments, what do they have left to spend with those businesses that you want the banks to lend to? Banks have other sources of funding other than customer deposits. The problem with banks isn't funding. Its capital and customer deposits don't help on that score.


 

People's savings are used to seed capital for investments, No? People will also begin to rein in their spending as they receive less on the savings and investments.

Also, the last thing we need is too encourage people to be getting more credit for spendng. It is much wiser to get people to save and then use their savings for spending.


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## Cayne (6 Mar 2009)

UptheDeise said:


> It is much wiser to get people to save and then use their savings for spending.


 
This is the root of the problem in the world economy, people are not spending, therefore reducing demand and costing thousands of jobs.


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## UptheDeise (6 Mar 2009)

Cayne said:


> This is the root of the problem in the world economy, people are not spending, therefore reducing demand and costing thousands of jobs.


 

The problem was with cheap easy credit, hence a credit bubble. People have been over borrowing, over spending and over consuming. Now the bubble is deflating our flase economy is collapsing.


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## Sunny (6 Mar 2009)

UptheDeise said:


> The problem was with cheap easy credit, hence a credit bubble. People have been over borrowing, over spending and over consuming. Now the bubble is deflating our flase economy is collapsing.


 
So we raise interest rates as a punishment or something? 

I am sorry but I just can't see the logic to the argument. You say you want interest rates to be high so people will save more so banks will lend to business. And yet you seem to forget that high interest rates mean high business loan rates. Higher mortgage and credit card repayments by individuals means less spending (and saving) and therefore less consumer demand. Also bad for business  but you seem to think this a good thing because we had a bubble. I agree that everyone from individuals to companies to banks need to deleverage but raising interest rates in the middle of the biggest recession in 80 years and the threat of deflation hanging in the air is not the way to go about it.


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## Damian85 (6 Mar 2009)

It is a balancing act. Yes interest rates need to be low to help stimulate lending and consumption.

However if interest rates are too low for too long, inflation could be the outcome.

If interest rates are too high, this could lead to a continued freeze in the credit markets.

If interest rates are kept artificially too low for too long, then this is simply proping up what ever is left of a consumption bubble.

If they are too high, it would be too big a shock and serve as an effective death sentence on businesses and consumers.


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## UptheDeise (6 Mar 2009)

Sunny said:


> So we raise interest rates as a punishment or something?
> 
> I am sorry but I just can't see the logic to the argument. You say you want interest rates to be high so people will save more so banks will lend to business. And yet you seem to forget that high interest rates mean high business loan rates. Higher mortgage and credit card repayments by individuals means less spending (and saving) and therefore less consumer demand. Also bad for business but you seem to think this a good thing because we had a bubble. I agree that everyone from individuals to companies to banks need to deleverage but raising interest rates in the middle of the biggest recession in 80 years and the threat of deflation hanging in the air is not the way to go about it.


 

I never said we should raise the interest rates. We should let the rates probably stay at the same level. Incidentally both the British and Americans are printing money. This 'extra' money will dilute the existing money supply and eventually lead to unbelievable higher rates of inflation coupled with even higher interest rates. You've been warned. *Gulp*.


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## Sunny (6 Mar 2009)

UptheDeise said:


> I never said we should raise the interest rates. We should let the rates probably stay at the same level. Incidentally both the British and Americans are printing money. This 'extra' money will dilute the existing money supply and eventually lead to unbelievable higher rates of inflation coupled with even higher interest rates. You've been warned. *Gulp*.


 
And Europe will be doing it before long. I agree that high inflation seems inevitable for no other reason than Governments will have massive debts to pay off by the end of this cycle and although they will deny it, as long as it doesn't turn into a bushfire, they will welcome it. 

We are in completely unchartered water here. Nobody has ever really attempted what the UK has attempted this week and I know people have tried comparing it to Zimbabwe and pre war Germany but that's a pointless attempt at headline grabbing. Its all fun and games though!


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## Bronte (6 Mar 2009)

I wonder when they will start to pay us to borrow?


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## Damian85 (6 Mar 2009)

Bronte said:


> I wonder when they will start to pay us to borrow?


 
If you can lock in interest rates at a fixed rate over a medium to long term and if the level of inflation is higher, then you are effectively paid to borrow.


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