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Wednesday, 17th April 2024
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Weak interest rates forecast until 2003 Back  
Noel Griffin, head of treasury division, Bank of Scotland (Ireland) Limited
I believe euro interest rates will fall further and are likely to remain relatively low for quite some time. For the record, I also believe US dollar and sterling interest rates will fall and remain relatively low.

The key word above is relatively. The object of this exercise is to establish if long term interest rates are likely to be higher or lower than current levels. Clearly this would influence one’s decision whether to fix the interest rate on borrowings or remain on a variable rate. While this decision would have been a crucial one for many individuals and businesses in the days of high interest rates I do not believe the same weight applies to this issue today. Most people can vividly recall interest rates in double digits. Fixing a loan for, say, 5 years at 12/13 per cent and then watching interest rates tumble to half that level can seriously damage one’s bank balance. However, at today’s levels it is fair to assume variable rates are unlikely to fall much below 3 per cent. Therefore one can safely fix the interest rate on borrowings for 5 years in the knowledge that if variable rates remain relatively low or indeed fall the damage is limited and more than offset by the certainty fixing interest rates brings. This certainty should not be dismissed lightly. Most borrowings will be for either personal debts such as the mortgage, debts relating to an investment (such as property) or business related debts. In almost all cases there would be a fixed income stream (monthly salary or rental income). It makes absolute sense when there is a fixed income stream to fix the outgoings. While interest rates are unlikely to go any more than 1 per cent to 1.50 per cent lower than current levels clearly they could rise significantly higher.

While I would not be concerned about significantly higher interest rates I do believe fixing one’s interest rate at the current levels offers good value for money and considerable peace of mind.

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