Interest rates 2006

Bonafide said:
How long is a piece of string exactly? ;)
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Ac-"cord"-ing to Trichet himself, the markets, which have been pricing in 2.75 - 3% by the end of the year, have understood ECB intentions. They've got us on a "string", I'm afraid.
 
CoffeeBrew said:
Ac-"cord"-ing to Trichet himself, the markets, which have been pricing in 2.75 - 3% by the end of the year, have understood ECB intentions. They've got us on a "string", I'm afraid.
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I'm a frayed knot....
 
I would expect an Interest Rate rise in February or March of about a .25% and probably at least one and maybe two more rises during the rest of the year based on the following

Signs of economic recovery in Germany allows the ECB to raise rates without damaging economic growth.

Higher Oil prices may push up inflation therefore causing the ECB to counteract this by raising rates.

There is a huge amount of borrowing going on throughout the Eurozone which can have an inflationary effect. eg. House Price Rises!. To reduce the money supply the ECB can raise rates.

On the other hand, The French and Italian economies are still struggling so that may hold the ECB back a bit from raising rates and another key factor will be the strength of the Euro against the Dollar. If the Dollar weakens then the ECB may be reluctant to raise rates that will increase the Euro value more making it harder for European Exporters to sell.

My best guess is a definite rate rise in February or March and a 75% chance of a rise in the Summer with a 50% chance of another rise later in the year, though this may change taking into account the factors I've mentioned above.
 
The collapse in cash released from refinancing mentioned in that article is amazing !

The cash extracted by homeowners from refinancing conventional mortgages may drop to $100 billion to $120 billion this year from $230 billion to $250 billion last year, said Amy Crews Cutts, deputy chief economist at Freddie Mac, the nation's second largest buyer of home mortgages. That may curb consumer spending, which accounts for around 70 percent of the economy.
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To get to your question, I'd imagine the ECB would be concerned if the interest rate differential with the US began closing and the Euro started to surge. So if the US continues raising rates it's an additional factor that allows the ECB to do the same. It's not the only factor though.

Be interesting to hear if Trichet gives any clues at his press conference tomorrow.
 
On investment properly variable rate 3.25 went ahead with 3.29 for 2 yr fixed thinking not bad
 
SteelBlue05 said:
Well we may not see the expected Spring increase in rates for a while more yet as the German Economy is stagant...

http://www.rte.ie/business/2006/0214/germany.html
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I think this will just reaffirm the ECBs current approach in not being too aggressive - so we might not see rates hit 3 - 3.5% until next year.

They are also concerned that the long period of low interest rates raises the spectre of asset price bubbles. I wonder if they've discussed any examples of this amongst themselves ;)

edit: p.s on a related note. Look who's on his way..

http://news.ft.com/cms/s/0dc37d1c-9cbd-11da-8762-0000779e2340,dwp_uuid=d4f2ab60-c98e-11d7-81c6-0820abe49a01.html

[broken link removed]
 
The bullish state of the long dated US Treasuries Market says it all, inverted yield curves (which we are seeing now) are a precursor to an economic slowdown. The new Fed chairman will increase rates until they are seen to be having an impact on the general economy, the housing bubble, and consumer spending. I think the Fed will start cutting rates again later this year in response to a weakening economy and that’s what the bullish Treasury buyers are betting trillions on. As the US economy is the main driver of world consumption this will impact the Global economy, I cant see the ECB going much above 3% in the next year.

http://today.reuters.com/business/newsarticle.aspx?type=reutersEdge&storyID=2006-02-10T214456Z_01_N10552162_RTRUKOC_0_US-MARKETS-BONDS-INVERSION.xml
 
I will be interesting to hear the views of Ben Bernanke at the congressional hearing tomorrow. I think the markets will want to know whether rates will go north of 5% and if so by how much.
 
I would not be surprised to see US rates hit 5% shortly and thereafter to 5.5%.

Going back to the ECB - looks like the buildup continues to the March meeting.

Current low ECB rates should be considered temporary and the exception rather than the rule : This according to ECB council member Guy Quaden:

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It appears the ECB would dearly love to raise rates and its a certainty that there will be an increase in March, however recent data from the German and French economies shows that economic performance in the last quarter of 2005 was a lot poorer than expected though they are expecting a better first quarter of 2006. In addition, Oil prices seem to be on the slide again and have dipped back below $60 so that should hopefully slow down the level of inflation.
If oil continues to drop and economic performance in the main eurozone economies doesn't perform as expected then the ECB may not be able to raise interest rates as much as they would have liked this year.
 
CoffeeBrew said:
I would not be surprised to see US rates hit 5% shortly and thereafter to 5.5%.
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If the Fed keeps hiking the US interest rate then the ECB will probably have to follow suit at some stage regardless of inflation and eurozone growth rates.

If the Fed goes to 5.5% I'd expect the ECB rate to go to at least 3% within the next 12 months.
 
"when does affordability of lending multiples start hurting" seems to be the real theme of this thread - why else would people be interested in rates

eg investor / FTB gets interest only loan @ 2% rate plus 1% tracker = 3%, rates go to 3% (conservative) - total repayment is now 33% higher - either investor rents go up accordingly, or FTB income rises significantly - highly unlikely, time for a bath for both parties long-term - should at least kill the medium term capital gains in our debt ridden eurozone economies.
 
derrymanrates go to 3% (conservative) - total repayment is now 33% higher - .[/quote said:
But the increase is perceived as manageable as it only translates into a small amount extra per month so I dont believe it will have much impact.
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huh... - only kidding :D

math 101 - typical southside (you want a tenant - don't you?) two bed apartment = €400000 - assuming that investor gets 100% interest only loan (thats the only way the 3% rent / repayment makes investor sense) leveraged on other assets (his own PPR maybe) - so the 33% interest repayment repayment explained above (why retype?) = €4000 / annum or 333 / month, lets try 4% base rate (end 2007?) = €8000 / annum or 666 / month. I am a landlord and these multiples are perplexing - the game is flimsy at least - rising repayments, <3% rental yeild = time to take stock.

boo hoo investor - BUT all ships fall in a flowing tide - boo hoo FTB/owners
 
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