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Annual Interest Rate on IMF Loan

  • 30-11-2010 11:04am
    #1
    JJHOGAN2
    Registered Users, Registered Users 2 Posts: 6 ✭


    A few questions
    1. Am I mistaken to think that the annual interest rate on the IMF 'facility' is c6% ?
    2. What will the implications on variable mortgage interest rates be on this increased cost of capital for the banks ?
    If the answer to 2 is interest rates above 6% then those on variable rates will be facing a substantial increase in repayments.

    Have I missed something here ?


Comments

  • #2
    Bob_Latchford
    Registered Users, Registered Users 2 Posts: 399 ✭✭Bob_Latchford


    Think you missing a link between cost of the money to Ireland and the mortgage rate.

    There isnt one as far as I know


  • #3
    zig
    Registered Users, Registered Users 2 Posts: 1,206 ✭✭✭zig


    I cant see the interest on the IMF loan having an effect on variable interest rates, that cost is being taken care of by the tax payer. Still not sure though tbh.


  • #4
    JJHOGAN2
    Registered Users, Registered Users 2 Posts: 6 ✭JJHOGAN2


    My logic, perhaps flawed, is as follows:
    • Banks are under capitalised
    • Banks cannot borrow on inter bank market
    • Government funds banks through IMF loans/facility
    • Governemnt charges banks for funds provided
    • The charge to the banks should be at least the cost to the government of its own borrowings = IMF rate
    • Banks will have to charge customers at least its own cost = IMF Rate
    My logic says that if all parties in the chain of IMF to Government to Banks pass on the input costs, plus any margin, then the cost to the banks customer must be at least the IMF rate.


  • #5
    zig
    Registered Users, Registered Users 2 Posts: 1,206 ✭✭✭zig


    JJHOGAN2 wrote: »
    My logic, perhaps flawed, is as follows:
    • The charge to the banks should be at least the cost to the government of its own borrowings = IMF rate
    • Banks will have to charge customers at least its own cost = IMF Rate
    My logic says that if all parties in the chain of IMF to Government to Banks pass on the input costs, plus any margin, then the cost to the banks customer must be at least the IMF rate.

    I dont think this is correct, the point of the bailout is to prop up the banks, but its actually the tax payer that is receiving the bailout, so its like we are receiving money , giving it to the banks but we are looking after the paying back of the loan and the interest, im sure some will be passed on but not all of it.
    Maybe someone with a bit more expertise could clear this up?


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