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Writing Is On The Wall.

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The writing is well and truly on the wall now, Christmas for the HPC looks like it might come a little earlier than initially anticipated.

I have no sympathy for anyone who has failed to take advantage of the virtually free money at fixed rates of ten and 20yrs. Anyone caught with their pants down this time, deserves to lose it all.

And for buying today, well you have to be brave but the fixed rates on offer are going to be a thorn in the side of the banking system for two decades.

Jean-Claude Trichet, European Central Bank president, made clear yesterday that the ECB would not rush interest rate increases, with the next rise likely in June, rather than May as financial markets had expected.

In spite of "upside risks" to inflation, the ECB would proceed with "serenity and steadiness", Mr Trichet said after a meeting of the central bank's governing council. The ECB raised borrowing costs by a quarter of a percentage point in December and in March, but left its main rate unchanged at 2.5 per cent yesterday.

Mr Trichet's remarks highlighted the ECB's wariness about hasty interest rate changes after years of sluggish growth. They also appeared aimed at ensuring ECB interest rate changes remained highly predictable and at asserting his control over communication policy.

Optimism about the 12-country eurozone has brightened markedly, with Germany's Ifo business climate survey last month showing the highest reading for 15 years. Mr Trichet was more upbeat about prospects and made a rare reference to "normalising" interest rates. But the ECB would not be distracted by short-term volatility in data - just as it had not been blown off course by unexpectedly weak economic growth at the end of last year. In June, the ECB would have a "wealth of new information", Mr Trichet said. By then, gross domestic product data for the first quarter of 2006 will have been released, and the ECB will have revised economic forecasts. Symbolically, June's ECB meeting will be held in Spain, which has the highest eurozone inflation rate.

"They are saying that all the conditions are in place for a rate hike but they want to remain cautious, they want confirmation in the hard data," said Florence Barjou, economist at BNP Paribas in Paris.

The ECB has faced warnings from politicians that higher interest rates might choke off the upturn. But Mr Trichet did nothing to dissuade markets that, as in the US and Japan, a monetary tightening exercise was under way. "The one big message here is that if nothing extraordinary happens, then we're are on a path of 'normalisation' and that means sort of 25 basis points a quarter," said Erik Nielsen, economist at Goldman Sachs.

Mr Trichet said that financial market expectations about a May interest rate increase did "not correspond to the present sentiment of the governing council". He deliberately avoided stressing the ECB "vigilance"- a code word used previously to signal that an interest rate increase was in the offing. But in a reference to the June meeting in Madrid he said: "We have absolutely no rule about not increasing interest rates when we are out of Frankfurt."

Mr Trichet said inflation was likely "in the short term" to remain above the ECB's definition of price stability - an annual rate "below but close" to 2 per cent. Longer-term developments would depend partly on tax changes. The German statistics office yesterday said Berlin's plans to increase VAT by 3 percentage points in January 2007 could add 1.4 percentage points to German inflation.

Edited by laurejon

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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