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Just How Far Up Will It Go?

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I`d be very interested{as there seems to be a lot of informed posters}to have opinions on just how far interest rates could rise over,say,the next 5 years?

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I personally think that rates wil go as high as 7% and maybe 8% at a push. Can't see them going any higher TBH.

On the other side I cannot see IR' going BELOW 4% again. It encourages too much debt and I think a lot of people will learn from the forthcoming shit hitting the fan.

TB

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I`d be very interested{as there seems to be a lot of informed posters}to have opinions on just how far interest rates could rise over,say,the next 5 years?

5 +/- 5% IMO :D

Seriously, there's absolutely no way to predict on that timescale that's what derivatives are there for. However, in the short term (1-2 years) IRs could go to 7% IMO.

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Fwiw, 5 years is now an eternity for any forecasts.

I'm interested in the Geopolitical situation and there anything could happen.

5 years takes us into GE here and Presidential elections in the USA.

Who wants to predict the results of either of those and how those countries' international policies might change?

Oh, and how many years for Iran to have a practical nuclear weapon?

Then there are tensions of various sorts building in the UK.

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By some estimates, inflation is really running at about 7%, so even with a large rise, real rates will still be negative. I can't see them addressing the issue until a depression (either inflationary or deflationary) has brutally snatched the controls from their hands.

That would be the case if employers and unions used the 'real' inflation estimates for negotiation.

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The longer the delay before making a correction, the higher they end up going. We have rampant inflation at the moment but it has been disguised with smoke and mirrors. My money is on 7-9% around the time of the next election.

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I personally think that rates wil go as high as 7% and maybe 8% at a push. Can't see them going any higher TBH.

On the other side I cannot see IR' going BELOW 4% again. It encourages too much debt and I think a lot of people will learn from the forthcoming shit hitting the fan.

TB

Do you think they will really remember? Did they remember what happened the last time :unsure:

Now back to the subject, Urgh.. what were we talking about again :huh::D

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Is it that important what IRs are?

You think it is important because you have been told that's what crashed the economy in 1990 and that's what created the boom. You have been told this by the government and the media.

Sure IRs are a factor, but they are not even the main factor.

Look at the money supply!

The BoE can buy as much or as little bond debt as it wants.

If the BoE stops buying Govt. debt then the banks cannot easily lend more. If the BoE continues buying debt then the banks can lend. If the BoE starts selling off government debt then the banks must start calling in loans. This is the real lever to control inflation, not IRs.

frugalista

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Is it that important what IRs are?

You think it is important because you have been told that's what crashed the economy in 1990 and that's what created the boom. You have been told this by the government and the media.

Sure IRs are a factor, but they are not even the main factor.

Look at the money supply!

The BoE can buy as much or as little bond debt as it wants.

If the BoE stops buying Govt. debt then the banks cannot easily lend more. If the BoE continues buying debt then the banks can lend. If the BoE starts selling off government debt then the banks must start calling in loans. This is the real lever to control inflation, not IRs.

frugalista

However, IRs give a perceived affordability to a loan. This has created a demand for borrowing. Whether the banks can supply that demand is another matter. Large quantities of cheap money, i.e., liquidity drive down the spread between high street base rates and bank lending rates due to competition. In a time of weak economic growth central banks have to be ready to provide excess liquidity to smooth over the cracks. Once that's over they can reverse the process to a more sustainable level. This may need to be tweaked, i.e., a base rate higher than sustainable to mop up excess liquidity.

As interest rates go up and the BoE rein in liquidity two things will happen:

1. The base rate increases (obviously).

2. The spread to the high street bank IR will increase due to increased credit risk and decreased liquidity.

It's not all about IRs, but they play a central role and are in concert with other behaviour.

Edited by karhu

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  • 341 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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