ECB will stop raising rates??

ctc_celtic

seen this quoted by Ulster bank 'Ulster Bank says the European Central Bank will stop raising rates after the next hike expected in September.'
http://www.rte.ie/news/2007/0713/economy.html

main question, is it true?

i don't know much about this area, but that seamed to be wishfully thinking, even to me.

A Random Walk

To date the predictions of most Irish economists have been wrong and hopelessly wrong. One day they will eventually be right.

There's 95% certainty there will be one more, after that it's more uncertain. From what some of the ECB members have been saying, I would be confident there will 2 more at least by early 2008.

The risk for ECB rates is on the upside. I can't see where they stop raising rates considering their inflation expectations and the strength of the German economy.

ctc_celtic

is it not very irresponsible for a bank to say 'will stop raising rates', if it had of been, 'predicted' or 'we expect', then thats a different story.

patrickolee

No one really knows, but to be fair, the banks probably have a better idea than anyone on here. No disrespect meant.

Time Magazine

A few of us keep a keen eye on all things economic. Some of us have degrees (and higher) in these fields, some are even professionals in industries directly influenced by interest rates. Banks are staffed by the sort of people you read on these fora.

ctc_celtic

if its ture, great.
just though it was a very 'mater of fact' statement, that wasn't a fact.

whizzbang

Take a look at the Banks 3 year fixed term interest rates and see if that matches what they are saying... If 4.25% will be a peak then they should be happy to give you 3 years at 5.25% or there abouts...

Pa ElGrande

You probably have exactly the same qualifications that I have to make a prediction about the housing market. – None. But who does have qualifications to make these predictions? Your friends? Your colleagues? Your family? Television? Economists? Estate agents? Building societies? Banks?

Whenever you take advice on any subject, it is basic common sense to consider

1. Who is giving you the advice?
2. What is their interest in the subject?

When it comes to the housing market, most people are unqualified. Some people have ‘experience’ and a handful have qualifications.

Many of the people we know (friends/colleagues) are unqualified, but may own their own home and can relate their own experience. They may not have an interest in misguiding us. However, due to the currently historically low interest rates, they may have just taken out a large loan on their property (for a holiday or car perhaps or plasma screen TV and home cinema) and may not wish to believe certain possibilities. Of course I would never suggest that your family would purposefully give you harmful advice, but when they give you advice, ask them WHY they believe what they do. If they start using reasons that begin with “They say”, then ask WHO says? Do they have any figures on this? What research have they done?

Estate agents have much more experience in the housing market, and so ARE qualified to advise you. But will they advise you correctly? Or do they have a vested interest in selling you a property? If you were an estate agent, would you ever advise a customer NOT to buy a house? If the answer is ‘yes’ then you should NEVER become an estate agent.
If an estate agent encourage's people to borrow more than they can afford, knowing they will be in danger of losing their home, and that means he has sold a house, this means he's done his job and gets paid. It is ALWAYS the clients decision whether they take his advice. Trust an estate agent at your peril.

Banks and Building societies have a lot of facts and figures about the housing market. They see price movements, as in effect they are the ones that own most of the housing in this country. They make money by lending money. They will always take the most positive view of any figures in the housing market. If prices are slowing, they will tell you they will level off. If prices are falling, then they will tell you to buy now as houses are cheap, and the fall is about to end. Whatever they tell you can be roughly translated as “PLEASE come and borrow some money, our shareholders need profit”. If you ask someone selling fish at the fish market whether it is a good time to eat fish, what would they say?

Economists (when not tied to the above institutions) are experts in markets. Not housing markets, but all markets. Shares, gold, pork bellies, oil, houses, rubber and copper are all commodities; they all have markets, and those markets have trends and patterns which can be analyzed. Generally economists have no interest in the market itself, their job is analysis. They don’t make money if the market rises. They don’t lose out if it falls. My opinion is that they are one of the best sources of advice for ANY market.

As for television… well. If you manage to turn on the TV when it ISN’T showing a property programme (Do you remember programmes? They are the things that come on between the loan adverts), you will probably find that the opinions they give are from lenders or some institutions.
The ESRI or Central Bank are sometimes quoted, but these depend on the government for their existence and will be anxious not to rock the consensus of their political masters.

Newspapers and TV are not experts, they just peddle common opinion. They jump on the bandwagon and report what they are told to by industry.
Don’t believe everything you read in the press. I would go so far as to say, question EVERYTHING you read in the press. Look at what the estate agent is saying. What proof do they have? Who did the survey? What was it about? Some journalist huh?

PLEASE REMEMBER THAT MY OPINIONS ARE BACKED UP BY NO RELEVANT QUALIFICATIONS WHATSOEVER.

miju

patrickolee wrote:

the banks probably have a better idea than anyone on here. No disrespect meant.

well up until now their predictions of rates stopping haven't exactly been on the money

sorry bad pun

Colonel Sanders

patrickolee wrote:

No one really knows, but to be fair, the banks probably have a better idea than anyone on here. No disrespect meant.

It is within banks interests to keep the property fuels burning, considering estate agents have been known to tell blatant lies re. trends and banks have been suspected of many practises to try keep the fuels burning (see housing bubble thread) I'm not sure I'd believe this.

patrickolee

miju wrote:

well up until now their predictions of rates stopping haven't exactly been on the money

sorry bad pun

Ah yes, there announcements in the press were always wrong and would talk things up. But if you looked at what they were really saying, with their rates (fixed vs variable), it told a different story.

... and yes terrible pun

The_Conductor

Ibid wrote:

A few of us keep a keen eye on all things economic. Some of us have degrees (and higher) in these fields, some are even professionals in industries directly influenced by interest rates. Banks are staffed by the sort of people you read on these fora.

I have to agree with you 100%

An old joke about economists comes to mind- An economist is someone who can tell you tomorrow, why what they predicted yesterday, to happen today, didn't.

Its in the interests of banks here in Ireland to propogate the myth that there will only be x number of more ECB rises. Quite simply, they do not know. Recent statements from the ECB would tend to indicate that they continue to be worried about inflation in France and Germany- which are both increasingly at an alarming rate. The most recent ECB comments were interpreted by UK analysts as not only being on the upside, but that rises may happen earlier than anticipated......

If the Ulster Bank was so sure that ECB rates were going to peak at a particular level- it would make sense for them to put their money where there mouths are, and reflect it in their term rates. Quite simply they have not done so.

TCollins

As my economics lecturer used to say "The only people wrong more than amateur economists are professional economists"

OP i wouldnt give much time to anyones predictions on interest rates, apart from the ECB. The truth is, while anyone can guess, noone knows.

EnoughSaid

Economists who work for banks may be qualified but they have a vested interest to keep the public borrowing.

It is always in the banks interest to encourage people to borrow more money because more borrowers = more profit. If an economist who works for a bank says that, for example, "there will be 3 more interest rate increases in the next 6 months" then this will discourage the gereral public take out mortgages, his bank will not be as profitable and what will his bosses think of his advice? How secure will his job be?

Therefore ecomonists who have a vested interest will be encouraged to play down further potential interest rate rises to keep the punters coming through the bank's door.

Firetrap

Definitely. There are a couple of economists (2 in particular who I won't name just in case I go against forum rules/annoy the mods!) from banks who fall into that category with a vengeance. Every time the ECB raises rates, you'll hear these guys on the radio saying the economy's strong/there's demand for houses/affordability isn't an issue. The day they say anything other than this, I'll be skating on an ice rink in hell.

iguana

patrickolee wrote:

But if you looked at what they were really saying, with their rates (fixed vs variable), it told a different story.

That is a good point. However a lot of UK banks got it wrong 15 months ago and were offering low fixed deals and rates have risen 6 times since then with at least one more due this year. So if UK banks can't predict what the BoE is going to do when they just have their own economy to consider I wouldn't have a huge deal of faith in Irish banks to predict what the ECB will do when there are 27 economies to be taken into account.

copacetic

ctc_celtic wrote:

is it not very irresponsible for a bank to say 'will stop raising rates', if it had of been, 'predicted' or 'we expect', then thats a different story.

not really, since they have no involvement in the actual decision everything they say is 'predicted' or 'guesswork' more like.

Time Magazine

iguana wrote:

I wouldn't have a huge deal of faith in Irish banks to predict what the ECB will do when there are 27 economies to be taken into account.

13. European Central Bank manages the monetary policy within the Eurozone as distinct from the European Union.

Rosser

Ibid wrote:

. Banks are staffed by the sort of people you read on these fora.

Is that a recommendation for the Banking sector or for the forums?

copacetic

Rosser wrote:

Is that a recommendation for the Banking sector or for the forums?

neither!

Time Magazine

Rosser wrote:

Is that a recommendation for the Banking sector or for the forums?

We're a nation of messers either way .

iguana

Ibid wrote:

13. European Central Bank manages the monetary policy within the Eurozone as distinct from the European Union.

Must stop posting when hungover.:o

conor_mc

patrickolee wrote:

Ah yes, there announcements in the press were always wrong and would talk things up. But if you looked at what they were really saying, with their rates (fixed vs variable), it told a different story.

Just for clarity here, banks don't go making decisions on their fixed rates based on their own opinions of future interest rate movements. If that were the case, you'd see those chirpy chappies over at IIB offering "done and dusted" fixed rates considerably lower than their more conservative couterparts in AIB, for example.

Essentially, they purchase these rates from the money markets. Since this series of hikes started in Nov 2005, there has been a consistent pattern of the markets waiting for code-phrases from the ECB before each coming rate hike is firmed up. So you get Comical Austin done and dusted at 3% or whatever, because at that time the markets were rating hikes beyond that at a very low probability. Of course, here we are at 4% today.

The ECB doesn't get into flagging potential rate hikes much more than a few months in advance, and of course they maintain that no hike is pre-determined.

This is why the ECB (according to Axel Weber) intend to drop code-phrases in the future, as they feel the markets are relying too heavily on them and not enough on their own analysis of risk.