Ulster Bank: Warning on Interest Rates

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CoffeeBrew

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Indo is reporting on comments yesterday from economist Niall Dunne of Ulster Bank.

"HOMEOWNERS were warned yesterday that interest rates could surge in the next few months"

What he means by "the next few months" is that Banks will raise fixed interest rates well in advance of the ECB rates rises expected to start early next year.

"Soaring oil prices will prompt central bankers to increase interest rates in a bid to dampen inflation..Interest rates were particularly likely to rise if oil prices stay in the $60 to $70 range into next year"


Full article:
http://www.unison.ie/irish_independent/stories.php3?ca=9&si=1455493&issue_id=12904
 
Yeah - they could surge in the next few months. Or they may not. Nobody knows. And if Ulster Bank reckon that they will surge then surely they have priced their fixed rates accordingly so that this sounds like a straight hard sell to earn them more money:
[font=Verdana, Arial] Mr Dunne advised homeowners to lock in to fixed rates, which he said were likely to start rising well before the European Central Bank announces a rate rise.
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Nobody can predict the future. Don't bother trying to time the markets in an attempt to save money. If you cannot afford variable repayments now or with a few percentage points increase then fix regardless of prevailing market conditions or analyst speculation. Otherwise stick with a competitive variable tracker.
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Niall Dunne was saying the same things six months ago IIRC. He has since been proven wrong.
 
I also recall that Ulster Bank lowered their fixed rates in the recent past, and Mr. Dunne was on record as saying what a great time it was to fix.

On the basis that fixed rates are still nearly 50 basis points above the tracker rate I pay, I think I'll take my chances.
 
CoffeeBrew said:
"Soaring oil prices will prompt central bankers to increase interest rates in a bid to dampen inflation..Interest rates were particularly likely to rise if oil prices stay in the $60 to $70 range into next year"
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Amazingly rising oil prices have barely impacted on eurozone inflation and as oil is priced in dollars this should have been further exacerbated by a weaking of the eur/usd. Eurozone inflation nudged up to 2.2 percent in July on a 12-month basis from 2.1 percent the previous month. The European Central Bank defines price stability as inflation "close to but just below 2.0 percent" but said last month that runaway oil prices would probably keep the rate above that this year. The July increase was driven by a jump in the price of housing, transport and alcohol and tobacco while prices for communication, clothing, recreation and culture had eased. Hardly runaway inflation I would have thought.
The International Monetary Fund (IMF) has cut eurozone forecast growth this year to to 1.3 per cent from its earlier revised forecast of 1.6 per cent as domestic spending has stalled against a backdrop of rising oil prices and, until recent weeks, an appreciating euro.
The IMF also said " the ongoing recovery has run into significant headwinds, notably high oil prices and (until recently) a sustained appreciation of the exchange rate". Difficult to see " surging interest rates in the months ahead " in the light of these facts.
 
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the Euro is also expected to rise back more towards 1.30 against the dollar. But as the lads say, financial analsysts are always able to explain events AFTER the event...but they rarely seem to be right beforehand...
 
I wonder if the indo was using Outlook as the source material for the article. In it Niall Dunne writes:

If growth strengthens, term interest rates will rise globally. If Asians purchase fewer dollar securities going forward, term interest rates will rise globally. And, ironically, even if oil prices surge and threaten economic recovery in the Eurozone, it's still likely that variable rates will rise, since the price stability mandate of the ECB might dictate hikes to counter inflation. Rates seem set to rise under all circumstances in the months ahead. (emphasis added)
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If by "months ahead", he means into 2006 then I would imagine that he holds the same current viewpoint as most of the other bank economists.


Outlook:

[broken link removed]
 
Basis points

CCOVICH said:
On the basis that fixed rates are still nearly 50 basis points above the tracker rate I pay, I think I'll take my chances.
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I've seen references to basis points in terms of comparing the cost of different mortgage packages, but can't find a definition anywhere. Could someone explain this to me, and where can I find such a comparison?

(I've seen the Best Buys list, but don't know if there is a direct correlation between APR and basis points).
 
Re: Basis points

fullerand said:
I've seen references to basis points in terms of comparing the cost of different mortgage packages, but can't find a definition anywhere. Could someone explain this to me, and where can I find such a comparison?

(I've seen the Best Buys list, but don't know if there is a direct correlation between APR and basis points).
Click to expand...

1 percentage point equals 100 basis points. The current ECB base rate is 2% so a rise of 25 basis points would bring it to 2.25%. Commentators regularly refer to the rise in this example as " a rate rise of a quarter of a percent" which is technicaly incorrect. A quarter of a percent rise in the base rate would bring it to 2.005%.
 
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