Increase in ECB Interest Rates

Otmar Issing (ECB Chief Economist) spoke this afternoon.

At this point he expresses some concern for those countries where variable rate mortgages are prevalent (e.g. Ireland !!)
  • These type of loans provide a direct channel to impact consumer spending
  • They carry the risk that the borrower will attach excessive importance to the current level of interest rates
  • More pronounced housing market cycles (Boom2Bust)
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I think Trichet has voiced similar concerns. i would have liked to be a fly on the wall at some of the recent meetings he had over here with the central bank.
 
I would have thought the fact that interest rates have such a direct and immediate impact on mortgage repayments in places like Ireland would be a good thing if you're a central banker? You can almost immediately influence spending etc. in the economy?
 
Perhaps so if our central bank had control of the reins.

Maybe Issing was alluding to the problems some countries could face compared to those countries where variable rates are not so common.

Bit like applying certain brake pressure will slow some cars and the same pressure will slow a different car more severely.
 
beattie said:
Is there any indication when the next increase will be?
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Spring sometime is all I heard. Likely to be another .25% increase if it goes ahead. But no one knows for sure.
 
Trichet gives a press conference at 2.30pm CET today.

You can watch it on a live webcast from www.ecb.int

Don't know how much he'll be giving away though: it might be the usual central-banker-speak that requires some interpretation and allows for wriggle-space.

Merrill Lynch ("world's largest securities firm") have upped their estimate of 2006 ECB rates to 3.5%. This is a bit on the high side compared to other estimates but apparently alarm bells have been ringing inside the ECB that explain their sudden urgency to move interest rates from 2%.

Interesting to hear if Trichet gives any clues.
 
SteelBlue05 said:
Spring sometime is all I heard. Likely to be another .25% increase if it goes ahead. But no one knows for sure.
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A few things were of interest I thought.

Trichet was at pains to make clear that this wasn't neccesarily the first of a series of rises, rather that it was a prudent move with regard to warding off inflation and maintaining that all-important 'price-stability'. This more than anything would seem to guide the ecb.

He was also at pains to explain that the ecb were very proud of being considered the 'most predictable' central bank of the majors. It was facinating hearing him responding at length to jouralists attempting to twist his statement to something quite different. All in all I'd imagine if another rate increase is on the cards in the next few months there'll be plenty of hints suggesting this in the run-up to the event (as happened this time).

I've lost the actual quote now so don't kill me if i've gotton the wording wrong but he did mention concern about house prices in parts of the eu, not for the first time either but interesting that it's part of the big picture for them.
 
I wonder how long it'll take all Irish mortgage providers to raise their rates?it seems to me that theyre's always a delay in lowering the rates when the ecb cuts theirs..daithi
 
AIB have put their rates up today according to their website www.aibmortgages.com

Just rang them to confirm fixed nominal rates:


3yr was 3.47 now 3.98 - increase of .51%
4yr was 3.65 now 4.20 - increase of .55%
5yr was 3.82 now 4.30 - increase of .48%

So they have increased their fixed rates by double the ECB increase!
 
Haven't seen this reported in any of the Irish sources this morning but the ECB is starting to repeat the language it used to signal the market prior to the last interest rate rise.

Otmar Issing is again saying "If necessary, we will act, and we can act at any time"

Although he repeated that interest rate rises will not be regular and automatic. He has suggested that they will act against inflation as needed.

He has also said recently that he expects inflation to stay above target throughout 2006 and 2007 - so draw your own conclusions from that !!

If growth proves robust in the euro-region, my bet is there'll be no stoppin' them.

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PodgeRoger

I think you have got the wrong rates if you look at the link they are as follows:

1 Year Fixed Rate
(new business) 3.31% EUR 5.511 Year Fixed Rate
(existing business) 3.41% EUR 5.972 Year Fixed Rate 3.48% EUR 6.003 Year Fixed Rate 3.56% EUR 6.044 Year Fixed Rate 3.71% EUR 6.165 Year Fixed Rate 3.84% EUR 6.21

not as big increases as you mentioned, eg
3 year fixed was 3.47 now 3.56 - increase of .09% if I'm not mistaken.
and the 5 year fixed is now up to 3.84 from 3.82 only a rise of .02%.

I dont know where you got the rates you quote, but maybe confusing rates with APR, which is like comparing apples and oranges.
 
Otmar Issing is an ECB "hawk". The December 1st increase of 0.25% was a compromise. Some members where calling for a 0.5% increase. I'd be willing to bet that Issing was one of them !

Here's the man (back row on the right):
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Issing resigns from the ECB in May. Can we expect his replacement to take a kinder gentler approach to monetary analysis and interest rates?

That's not looking likely at this point. His replacement could be Jürgen Stark, vice-president of Germany's Bundesbank. This man is also
a hardliner when it comes to emphasis on monetary analysis and the money supply numbers in the euro-region are much higher than they would like.


"Bundesbank's Stark Says ECB Rate Gains Won't Hurt German Growth"
http://www.bloomberg.com/apps/news?pid=10000100&sid=atmbkpvqyxA0&refer=germany

"Germany’s Stark tipped to replace Issing at ECB"
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I have to agree with previous post that we could have another increase sooner than expected. Once the Germans want higher rates I think the ECB will accommodate them whereas when small countries like us who needed them our requests would habe fallen on deaf ears IMO
 

Hi Cloughy
The rates you are quoting are the APR's detailed on the site which take into account the rest of the 20 year period at current variable rates. I was quoting the actual interest rate which is not displayed there but were given to me by AIB and I have just confirmed them. half percent increase on the fixed rates.
 

(Sorry podgerodge, we seem to have two interleaved threads goin' on but easy enough to follow ?)


Governing Council members Axel Weber of Germany and Yves Mersch of Luxembourg are striking "a more aggressive tone" on interest rates today.

Weber said in a newspaper interview that upward risks to price stability persist and that he could not rule out
another rate tightening coming early and without much notice.
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(Note: Weber is also German)
Looks like the groundwork is being laid already for the next hike ?

http://today.reuters.com/business/newsarticle.aspx?type=tnBusinessNews&storyID=nL09632651&imageid=&cap=
 
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