Interest rates - market view

beattie said:
The FT on Saturday were also speculating that there could be a 50 basis points rise in June, I would have thought that would have caused more unease among investors than two increases of 25bp each
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I can't see them doing this without signalling it well in advance. So far they seem to be taking a softly softly approach and if they wanted to increase by 50bp I think they would be much more likely to just do two 25bp increases close together (say one in May and one in June) rather than one large one.
 
Doubt they have the guts (or the justification yet) for a 50 point increase.
They are still smarting from previous criticism where they failed to signal clearly their intentions to the market.
 
CN624 said:
Doubt they have the guts (or the justification yet) for a 50 point increase.
They are still smarting from previous criticism where they failed to signal clearly their intentions to the market.
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I didn't realise there was previous criticism of any ecb failure to signal to the market their intentions. I know they are looking to be as transparent as possible but I thought the last 2 rate rises were ridiculously well flagged to anyone who'd listen.

I think there's more than enough justification to raise in May (.25%) but unfortunately Trichet appears to have jumped the gun a while back in almost certainly ruling that out.
 
We shall hear from him soon; I am expecting 25 points with another 25 points depending on the european figures released next week.
 
Well my deposit accounts are really hoping for 0.50% increase..

..but I'm just not sure the ECB have the cojones to actually do it.
 
but I'm just not sure the ECB have the cojones to actually do it
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I agree that they wont raise it by .50 even if they would love to. France is already calling for Intervention to reduce the value of the Euro and I would imagine Germany would feel likewise. .50 would just seem a bit too aggressive for the ECB.
 
soma said:
..but I'm just not sure the ECB have the cojones to actually do it.
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I suspect that's exactly why they may do it. Putting the foot down. But, like I said, a .25% May increase would have made a lot more sense.
 
Howitzer said:
I suspect that's exactly why they may do it. Putting the foot down. But, like I said, a .25% May increase would have made a lot more sense.
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The ECB prides itself on its transparency and the put themselves in a bind with Mr Trichet's remarks before the last meeting saying that the market had overestimated the chance of a rate rise in May.

Therefore, when it came to the crunch, they couldn't raise rates without loosing face and the potential volatility as a result of that would be worse than the prospect of keeping rates as they were.
 
Yeah that stated aim of being transparent has really backfired on them. Now every utterance is immediately seen by the markets as being key to future rate movements, when in reality they probably don't know what the best route is until key numbers come in.
 
The ECB is still trying to fully establish its independence and authority over the European Commission and the Finance Ministers of the main eurozone economies, thats why they are so careful in signalling their intentions to the market well in advance as they don't want to do anything radical that might not work for fear they will lose credibility and give Ammunition to the likes of Thierry Breton (French Finance Minister) who has questioned the need to raise interest rates. .50 seems a very gutsy but risky move for the ECB.
 
power1 said:
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I agree that they wont raise it by .50 even if they would love to. France is already calling for Intervention to reduce the value of the Euro and I would imagine Germany would feel likewise. .50 would just seem a bit too aggressive for the ECB.
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It doesnt matter what the germans and french think ,if inflation is on the rise they will raise rates regardless of the political interference.
 
Whether it's 0.5% now, or 0.25% now then 0.25% a bit later, the maths remain basically the same. The slow boiling of the heavily indebted continues.

The primary difference on June 8 will be a psychological one. If rates do go up 0.5%, the "race against rates" mentality here will go into overdrive. Property prices will spike again this summer as the fear factor kicks in.
 
walk2dewater said:
The primary difference on June 8 will be a psychological one.
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Most people I know laughed-off (literally) the two 0.25% rises so far. However a 0.50% rise in one go (compounded on top of the two earlier increases) may be the first rise that is large enough to actually register on some people's radars.
 
soma said:
Most people I know laughed-off (literally) the two 0.25% rises so far. However a 0.50% rise in one go (compounded on top of the two earlier increases) may be the first rise that is large enough to actually register on some people's radars.
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I agree. But it still won’t to tip the market into correction mode. We need the following to events to materialize for that to happen:

(a) A buyers strike. If anything, the perverse nature of the market here says that higher rates actually causes buying activity. Cf. Adamstown madness. The fear of being left out of the party is still far greater than the fear of paying too much or incurring losses (“prices only go up” etc)
(b) Lots of forced sellers. The majority of current owners see zero risk in holding property assets and, I reckon, can still cover their debts obligations. Therefore, even landlords who are subsidizing their tenants wont sell.
 
I believe that it will take more that this 50 bp increase to bring about some sort of slowdown in the increase in house prices. I think it will take the ECB going to 3.5% before sanity prevails in the market. If there is a slowdown this could seriously focus minds of some investors who are topping up their loans every month as they will have to dig deeper into their pockets.

What is the viewpoint as to where the ECB will be at by the end of the year?
 
More evidence of increasing recovery in Germany - I wonder will this push the ECB closer to the .5% rise in June?

http://news.bbc.co.uk/1/hi/business/5026510.stm

German consumer optimism surges


German consumers are becoming more optimistic about the future, a report has said, boding well for a continuing recovery in Europe's largest economy.

According to research company GfK, its consumer sentiment index rose to 6.8 in June - the highest level since 2001.
Recently, strong export growth has pulled Germany out of a slowdown but consumer spending remained weak. That may now change as the improving economic environment and job market prompts people to shop, analysts said.
 
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