Ecb May Raise Interest Rates To 3% - Rbs

[karhu]

Banking and finance

The Times June 05, 2006

ECB may raise interest rates to 3%

By Gabriel Rozenberg, Economics Reporter

THE European Central Bank (ECB) could raise interest rates by more than expected this week as it seeks to respond to the threat of rising inflation and to strong growth prospects in the eurozone.

After sustained rises in commodity prices, some economists believe that the ECB will raise its rates by a half-point to 3 per cent. The general view has been that rates will rise by a more modest quarter-point. The Bank of England, whose Monetary Policy Committee (MPC) also meets this week, looks set to keep UK rates unchanged.

Kevin Gaynor, of RBS, said that the ECB should respond robustly to inflation expectations, which rose significantly in the eurozone in May, and a roughly 0.3 per cent month-on-month rise in core inflation.

When you hear banks calling a 50BP rise, you have to take it seriously.

Ireland and Spain are on a precipice now. Parts of the USA have already gone. HPC is starting around the world. Plus, when Ireland goes that will take the prop from underneath Northern Ireland, which has been keeping some of the UK statistics in the +ve. HPC 2007 UK.

[Cinnamon]

When Ireland falls, the UK will certainly feel the effect as a lot of Irish investors have bought over here.

[BuyingBear]

At the end of every good Irish party things turn ugly.

[Jason]

Here's the link: http://business.timesonline.co.uk/article/...2210975,00.html

[cupidstunt]

.....end game for the Housing market.

[Guest muttley]

When Ireland falls, the UK will certainly feel the effect as a lot of Irish investors have bought over here.

...including my landlord.

I've said before the Ireland would have to fall before the UK.

[cupidstunt]

I've said before the Ireland would have to fall before the UK.

Agrees - I watched (part of) that RTE program on the Irish Economy. It finished by saying the "Celtic Tiger economy finished five years ago" Looks like their housing markets the only thing now proping up their Economy.

[Realistbear]

http://news.ft.com/cms/s/f67a6f70-f42e-11d...00779e2340.html

FT

ECB to raise interest rates as industrial output firms

By Chris Flood

Published: June 5 2006 03:00 | Last updated: June 5 2006 03:00

The European Central Bank is widely expected to raise interest rates by 25 basis points to 2.75 per cent on Thursday as growth in industrial output strengthens, while the Bank of England will keep rates on hold at 4.5 per cent as recovery in the UK's manufacturing sector remains more tentative.

A 50 basis points increase this week by the ECB is a real possibility according to the Royal Bank of Scotland, which highlights upward pressure on core inflation, a significant increase in consumers' inflation expectations and a clear improvement in manufacturing and services activity in the second quarter.

UK

Recovery in the

UK's industrial sector remains more muted

but survey evidence is pointing to a gradual improvement as global demand strengthens. HSBC is forecasting year-on-year growth to remain unchanged at 0.3 per cent in April on Thursday.

The headline measure for UK service sector PMI is expected to ease back modestly in May but attention will focus on the prices charged measure, which has risen sharply since January.

Tuesday brings the British Retail Consortium's survey, which is expected to report an improvement in May with

higher spending on flat-screen televisions

as consumers prepare for the football World Cup.

Friday brings UK trade data that have been distorted in recent months by valued added tax fraudsters. The underlying picture suggests the

trade deficit has deteriorated

and is acting as a drag on gross domestic product growth and that import prices are rising, which could push inflation higher. The consensus forecast is for the deficit to rise from £5.5bn ($10.4bn, €8bn) in March to £5.9bn in April.

With muted output, more spending on tat and a deteriorating deficit it appears the the Miracle Econmy will not sustain HPI and MEW for much longer. More spending on big screen TVs ain't going to cut it as they say on Wall Street.

[CrashIsUnderWay]

to be sure, to be sure, itz goin dine

[Flash]

When you hear banks calling a 50BP rise, you have to take it seriously.

Ireland and Spain are on a precipice now. Parts of the USA have already gone. HPC is starting around the world. Plus, when Ireland goes that will take the prop from underneath Northern Ireland, which has been keeping some of the UK statistics in the +ve. HPC 2007 UK.

Ah karhu, you are applying logic to this and I'm afraid logic left Ireland years ago.

A 25 or even 50BP rise will have almost no effect I'm afraid. The momentum is so strong it will take 100BP or more to really apply the brakes. It so bizarre what is happening here, you really have to be here to fully appreciate it. Now I'm doing ok, I have a fairly nice lifestyle and will still manage to save a tidy sum this year but because I'm not borrowing against property I am going nowhere in real terms, in fact I am going backwards. My neighbours house has gone up 80K in last 9 months alone and most of my friends/neighbours have second and third homes as investments. I know many are mortgaged to the hilt but they just don't care because they have borrowed against assets that are going up,up,up.

99% of people here will not accept that there is any problem with property whatsoever. You can tell them that Ireland is the most indebted nation in Europe, with consumer borrowing at 180% of GNP (equal to 70K for every man,woman and child) and rising at 30% per annum, but will be dismissed as a doomonger. Some people even get very upset if you question what it is going on, as if you have defamed a religion.

I arrived in Ireland three years ago and I feel as if I have gatecrashed on an obscure religious sect. Everyone is into property - I'm serious, every other person I speak to in my neighbourhood has a "property portfolio". They are studiously scanning the property sections of the papers for "the next big opportunity" which they don't have the money for, but hey, the bank will help them with that. You may think I am over dramatising, but you really have to experience this to believe it. It is beyond surreal.

Edited June 5, 2006 by Flash

[Jason]

Flash, when do you think it will end? Surely it will run out of steam at some point.

[Neffa]

Ah karhu, you are applying logic to this and I'm afraid logic left Ireland years ago.

A 25 or even 50BP rise will have almost no effect I'm afraid. The momentum is so strong it will take 100BP or more to really apply the brakes. It so bizarre what is happening here, you really have to be here to fully appreciate it. Now I'm doing ok, I have a fairly nice lifestyle and will still manage to save a tidy sum this year but because I'm not borrowing against property I am going nowhere in real terms, in fact I am going backwards. My neighbours house has gone up 80K in last 9 months alone and most of my friends/neighbours have second and third homes as investments. I know many are mortgaged to the hilt but they just don't care because they have borrowed against assets that are going up,up,up.

99% of people here will not accept that there is any problem with property whatsoever. You can tell them that Ireland is the most indebted nation in Europe, with consumer borrowing at 180% of GNP (equal to 70K for every man,woman and child) and rising at 30% per annum, but will be dismissed as a doomonger. Some people even get very upset if you question what it is going on, as if you have defamed a religion.

I arrived in Ireland three years ago and I feel as if I have gatecrashed on an obscure religious sect. Everyone is into property - I'm serious, every other person I speak to in my neighbourhood has a "property portfolio". They are studiously scanning the property sections of the papers for "the next big opportunity" which they don't have the money for, but hey, the bank will help them with that. You may think I am over dramatising, but you really have to experience this to believe it. It is beyond surreal.

Flash - I came to Dublin a year ago from London and can only agree 100% with what you say. Dublin is so property-centric it is truly astonishing and if you dare suggest to anyone that there may be a problem in future people can get quite angry.

It is like the UK in 1988/9 - a buying frenzy beyond reason.

Like you say, even a 50bp rise this week won't do much - I think you'll need 1-1.5% at least before prices will start to fall and that will be (ahem!) interesting to watch.

[cupidstunt]

So what you're saying is once the housing market (in Ireland) goes "tits up" so will the whole of their Economy?

It'll be the "potato famine" 21ST Century style!

Edited June 5, 2006 by cupidstunt

[Flash]

Flash, when do you think it will end? Surely it will run out of steam at some point.

Yes it will. It always does 'at some point'. When it does the effects will be devastating to the Irish nation and the story will be lectured to business students all over the world for decades.

To answer your question though Jason, we have a Dial election next year and Fianna Fail will do whatever they can to fan the flames until then, including what will be the biggest budget giveaway in history later this year (exactly what we don't need, but we'll get it anyway). Inflation is getting out of control, borrowing IS out of control, exports are falling and the economy is becoming steadily less competitive. My guess is that 2008 will see it all go into reverse.

If you have ever read about Mississippi Co, South Sea bubble, Tulipmania, Tokyo Real Estate and want to know what a REAL bubble looks like up close, then pay Ireland a visit this summer.

Like you say, even a 50bp rise this week won't do much - I think you'll need 1-1.5% at least before prices will start to fall and that will be (ahem!) interesting to watch.

Agreed. I think another 50 basis rise might bring out some complaining but that's about it.

...and Neffa, welcome to HPC.

Edited June 5, 2006 by Flash

[ronnie]

the interest rate rises to 3.5% base rates in themselves wont burst the bubble,the banks have to stress test by +2% so this will stop a lot of ftb's buying and this along with prices reaching massive levels will mean the bottom rung of ladder will be unreachable,then prices will stagnate untill investors seeing no more capital gains pull out and a negative downward spiral begins and hits all corners of the economy.

[dinsdale]

Flash - I came to Dublin a year ago from London and can only agree 100% with what you say. Dublin is so property-centric it is truly astonishing and if you dare suggest to anyone that there may be a problem in future people can get quite angry.

It is like the UK in 1988/9 - a buying frenzy beyond reason.

Like you say, even a 50bp rise this week won't do much - I think you'll need 1-1.5% at least before prices will start to fall and that will be (ahem!) interesting to watch.

I went to Dublin for work purposes recently. As we drove along a main road a few miles from the city centre the taxi driver was asking us to guess the price of the houses. These were bog standard semi detached. I wasn´t even close. They were going for 700,000 Euros. It was staggering. At some point the Irish must snap out of this bizzaro world they are living in. And then what - a stampede?

[Robbrent]

I went to Dublin for work purposes recently. As we drove along a main road a few miles from the city centre the taxi driver was asking us to guess the price of the houses. These were bog standard semi detached. I wasn´t even close. They were going for 700,000 Euros. It was staggering. At some point the Irish must snap out of this bizzaro world they are living in. And then what - a stampede?

Sounds like a bubble frenzy, the fall out will be huge for the Irish, but they may learn a good lesson from it, one I am afraid that we never seem to learn.

All the signs are there and here that this is a classic bubble, why is no one taking note? I like the point the poster amde of people getting angry when it was pointed out, that happens here as well, you tell people we are in a bubble, and they acuse you of being a doom monger

[Neffa]

I went to Dublin for work purposes recently. As we drove along a main road a few miles from the city centre the taxi driver was asking us to guess the price of the houses. These were bog standard semi detached. I wasn´t even close. They were going for 700,000 Euros. It was staggering. At some point the Irish must snap out of this bizzaro world they are living in. And then what - a stampede?

You do have to be careful with this. Dublin has far fewer period houses than London or a typical English city and has a great deal of new build which are well, new. So if your benchmark areas are the nicer period areas of London, then it is a bit shocking. Modern houses without a great deal of character in the prime areas do go for prices in Dublin which do seem astonishing as they are central and have good transport links. Even if there is a crash here, those will still be the prime properties/areas, even if they seem a bit bland.

Edited June 5, 2006 by Neffa

[Robbrent]

You do have to be careful with this. Dublin has far fewer period houses than London or a typical English city and has a great deal of new build which are well, new. So if your benchmark areas are the nicer period areas of London, then it is a bit shocking. Modern houses without a great deal of character in the prime areas do go for prices in Dublin which do seem astonishing as they are central and have good transport links. Even if there is a crash here, those will still be the prime properties/areas, even if they seem a bit bland.

The problem is with a bubble related crash, is that all property prices fall, but that's not the worst of it, far from it, confidence is sapped from the economy, people put of things, unemployment rises, in extreme cases prices go into freefall, not seen as of yet in a housing crash, but who knows, with this bubble being a world wide (Western) phenomenon and prices having risen so far. Another thing that happens which I find quite amusing is all of a sudden people don't want to talk about houses and prices, many are quite ashamed by it all, it was like that in the 90's here, but more importantly they don't want to buy either, there will be 1000's of repossessions going very cheap, so prices fall even further. In short when a housing bubble bursts it is not just a matter of falling houses prices, it takes much more with it.

[Green Bear]

Irish people are aware that this situation we find ourselves in cannot continue but are quite content to act as if it can and as the Navajo proverb says “you cannot wake up a person who is pretending to be asleep”.

[ciderpunk]

Irish people are aware that this situation we find ourselves in cannot continue but are quite content to act as if it can and as the Navajo proverb says “you cannot wake up a person who is pretending to be asleep”.

Moreover, 'there are none so blind as those that will not see'.

[nodumsunreader]

.....end game for the Housing market.

Havn't we heard that before somewhere?

[Guest Bart of Darkness]

Havn't we heard that before somewhere?

Yup, January 1991 according to this graph.

But that was a long time ago, in a galaxy far, far away. It's different this time.