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No change predicted until 2005
No change predicted until 2005
There is good news for euro borrowers, in the latest FINANCE forecasting survey on page 4.

The majority of those economists polled predict that the Eurozone’s historically low interest rate environment will continue for some time yet, and that the ECB will not look to increase its refinancing rate, which is currently at the level of 2 per cent until 2005, and may even initiate a rate cut before rates must inevitably start to rise again. We say ‘inevitably’ because there is increasing evidence that central bankers are willing to target inflation at 2 per cent rather than 1 per cent as the lower rate skirts the unpleasant spectre of deflation too closely.

On the currency front, it looks like the euro’s dominance against the dollar will not come to an end in the short to medium term, but it will weaken somewhat.

The direction of interest rates and currencies of course impacts on corporate treasurers’ strategies, such as those of Peter Byers of Heiton Holdings, (see page 7).

In his profile of Heiton Holding’s treasury division, Byers says that despite the introduction of the euro in 2002, dollar, sterling and other currencies remain a large part of the company’s payables base. Many of Heiton’s businesses have significant purchases from overseas, and so the Group’s policy, he says, is to cover forward for specific orders and not to speculate on future movements in foreign exchange rates.

Also on the treasury front, Annemarie Moore, of BRC Consultancy Services, gives advice to treasurers on page 10 on their cash management strategies. Moore points out that there are ever more product alternatives for treasurers ranging from money market funds to deposit accounts to cash pooling systems.

New developments
GE Capital, the financial services division of General Electric, is setting up a stand-alone treasury operation in Dublin, to hedge GE Capital’s foreign exchange and interest rate exposures. (See page 3).

Called GE Financial Markets, the new entity will be up and running by the summer and will initially have a staff of 14 and a capitalisation of E2.5 billion. GE Capital chose Dublin primarily for its time zone location, with other deciding factors including the network of tax treaties Ireland holds with other countries.

The move is a very positive development for the international financial services sector, with the potential that the operation will expand and provide hedging services to the entire General Electric group.

Over-regulation, a theme that has been discussed in the pages of FINANCE over the past number of months, was a major industry concern highlighted at the recent annual Finance Dublin conference.

Speakers such as Michael Buckley, chief executive of the AIB Group, and Willie Slattery, chief executive of State Street International and chairman of Financial Services Ireland, spoke of the importance of getting regulation right.

They told the many regulators present, including Alexander Schuab and David Wright of the EU Commision, Dr. Liam O’Reilly of IFSRA and Ethiopis Tafara of the SEC, that regulation must be competitive and not over-burdensome, otherwise the industry would suffer.

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