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Interest rate cuts create window of opportunity for borrowers Back  
Ten of Ireland’s interest rate specialists outline their opinion of the long term interest rate market and agree that it is decision time for euro borrowers. While most agree that the next few months offer a chance for borrowers to look at their long term interest rates and to consider whether they should have a variable or fixed rate on loans, there is disagreement as to the timing of any bounce back in rates.
Two lines of thought are apparent in the views below - there are those that believe a sharp bounce will lead to a quick rise in interest rates over the coming months and certainly into next year, while another school of thought argues that it will be well into 2003 before there is any upswing in rates. As treasury centres and finance directors across Ireland must look to planning for the next 18 months, the views expressed below give a range of opinions, and their economic basis.

Among the opinions expressed there is almost unanimous agreement that the next few months are a time to review the interest rate situation. There are those who believe more strongly that the current situation is as low as the rates will go, while other believe interest rates will continue to fall.

The argument centres on whether you believe it will take time to recover from recent events or believe there will be a quick rebound in activities internationally. An example of the debate can be seen through the comments of Austin Hughes and Dermot O’Brien. Austin Hughes says ‘I think recent events both darken the immediate economic outlook and, as large interest rate cuts and looming budget support take effect they also increase the prospect of a somewhat stronger eventual rebound. He goes on to explain how a range coinciding factors may allow ‘scope for quite a sharp rise in term interest rates.’

On the other side of the fence Dermot O’Brien disagrees. He believes that ‘Even if the impact on the world economy of the attack on the US is relatively short-lived, the likelihood is that the recovery in the US and European economies next year will be mild rather than rapid. As a result it is likely that interest rates will remain low for a protracted period.’

Oliver Mangan meanwhile believes the stage is set for a global upswing in activity over the course of 2002, but he says rates will be slower to respond: ‘Rate increases in response to stronger growth in 2002 are unlikely to materialise until late in the year. If indeed a substantial upswing in activity does get underway next year, then the key refi interest rate is likely to be increased to close on 5 per cent during 2003/ 2004.’

According to James Jordan ‘The rally, when it comes, may be from a lower base than is currently foreseen.’

Colin Hunt is actually predicting interest rates will rise before the end of the year. ‘Taking negative policy and neutral inflation factors intro consideration, I would expect to see long-term rates in both Europe and the US increasing by some 50 basis points over the course of the coming three months with a further 50 basis points in storage for the recovery in 2002.’

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