ECB Interest rates

trialofbottle

Not looking for advice of anything, just wondering, is there any sign that they'll stop raising their rates? Inflation is slowing so...

dotsman

Yes, there are signs, but they are more on the horizon than immediately in front of us.

Was actually in a briefing on this a few days ago and the "experts" were predicting it will go to between 3.5 - 4.0. Just bear in mind that the same "experts" at a previous briefing last summer were predicting it would max out at 3.00 - 3.25.

The problem with predicting it is that, while rasing interest rates does combat inflation, it really only tackles demand-driven inflation. However a huge part of our current inflation is down to supply-side, which interest rates don't really impact. So while inflation may be on the way down, it may still stay above 2.0 (the ECB's target rate) for quite some time, and the ECB have shown themselve to really fit the old adage "if all you have is a hammer, everything looks like a nail", in which case they would continue to increase rates, but inflation doesn't come down and they thrown the Eurozone into recession, and then you are into the hell of needing lower rates to promote growth conflicting with high rates to combat inflation.

Right now, there are so many variables, it is very difficult to predict A) how high they will go, B) when will the subsequently start coming down again, C) how far will they come down and D) when will we hit a period of relatively stable rates (i.e. they barely change for several years).

fliball123

https://www.boards.ie/discussion/comment/120249680#Comment_120249680

Surely if demand for something goes down due to high costs of trying to buy the good or service then surely it would follow suit that the cost of supplying the good or services would also drop or else the company supplying hits the wall due to a depleted customer base? Also surely interest rates will also impact the supply side as if they do not get money in they will run into cashflow issues as the low lending rates will no longer be available?

kippy

https://www.boards.ie/discussion/comment/120249695#Comment_120249695

Demand doesn't appear to be going down for housing, despite interest rate rises and mortgage costs, higher costs to build (which may have turned) and generally more global uncertainty.

Anecdotally, at least locally, it is harder than ever to get planning permission, harder than ever to fund a build and harder than every to get tradespeople. I only also see good quality houses rarely come on the market and when they do they are definitely not selling cheaper than the last similar house.

The population is continuing to rise and unless the rate of building matches demand it's really hard to see prices dropping to the extent that some people believe they will.

dotsman

https://www.boards.ie/discussion/comment/120249695#Comment_120249695

There have been many drivers for this inflation (hence why it has been so severe), but one of the supply side issues has, of course, been energy. It has driven up the cost of manufacturing, transporting and retailing of everything. But energy is an inert good. Peopel dont use electricity as a luxury, nor do they have a viable substitute. Thus, people (and companies) still have to buy it in pretty much the same volume regardles of price. So interest rates don't help with that at all.

Similary, as @kippy mentioned above, for the past 30 years we have had an increasingly critical shortage of suitable properties (for housing, offices, hotels) etc. But people need somewhere to live so have to pay the high price anyway regardles of interest rates, while offices and hotels will continue to pay higher and higher prices as long as they can recuperate that on the other end (i.e. passing on the cost to the customer). And while interest rate rises might mean less people going on holidays or going on a weekend away etc, given the massive amount of hotel rooms being consumed by the governement (with an endles supply of taxpayers and borrowed money) to house people, hotels are able to pay the constantly increasing prices and just pass it on to the taxpayer.

All it means is that people have less money to purchase luxury/discretionary goods, which redcues quality of life, and leads to economic stagnation/recesion.

walterking

Cheap energy causes wasted use, expensive energy causes people and companies to be more efficient.

8% less use in Europe in the past 6 months - that is phenomenal.

ECB is very determined to bring core inflation down below 2% (core excludes energy and food) It is currently 5.2% and moves a lot slower than headline inflation.

But ECB is still unlikely to go past 4% and I still think it will pause at 3.75% but stay there longer than previously thought.

daheff

https://www.boards.ie/discussion/comment/120260355#Comment_120260355

Not so sure myself. I was reading something on 70s/80s inflation. Apparently it went in 3 waves and took interest at 16% to stop it.

I don't think interest will get to 16%, but I do see it going a good bit higher than 4%.

Employment is too high, too many corporates reporting record profits. Means there's a lot of money floating around.

The only downside on the economy I see is countries with large debt rolling over onto much higher rates. That could cause higher taxes to service debt.

walterking

https://www.boards.ie/discussion/comment/120261813#Comment_120261813

Inflation posted negative both in December and January and looks set to post a negative figure in February too and March is likely to be near zero.

February negative will replace +0.9 last Feb and March figure will replace a 2.1% read from last March. June and September were also two high inflation months last year in the EU, but if things stay stable the headline rate will be under 3% by October. The Core inflation is more difficult to read as it excludes energy, but you'd hope it will start a downtrend soon.

Here's great site with every month inflation of many countries

https://www.inflation.eu/en/