No hike in interest rates expected until mid-2011

INTEREST rates are being held at their record low 1%, with economists expecting no hike until at least the middle of next year.

European Central Bank (ECB) president Jean-Claude Trichet said yesterday that Europe’s economy is stronger than some investors think and signalled the bank doesn’t intend to do more to fight the sovereign debt crisis for now.

“There is a tendency from the outside to be excessively pessimistic” about Europe, Mr Trichet said.

“Trichet wanted to spread confidence and show that the financial and banking sectors aren’t doing too badly,” said Carsten Brzeski, an economist at ING Group in Brussels. “He’s talking down the potential for a double-dip recession in the euro area. I agree. We will see a slowdown, but no double dip.”

Ulster Bank chief economist Simon Barry said, while the ECB may be moving “very gradually” in the direction of normalising the liquidity environment, there is no reason to expect any change in interest rates soon. He does not expect to see an increase in rates before the second quarter of next year.

Ernst & Young economist Marie Diron said also she does not expect any rate increase before the middle of 2011 at the earliest.

Meanwhile, the Professional Insurance Brokers Association (PIBA) said mortgage holders, other than those on tracker mortgages, should review their situation, if they have not done so in the recent past.

Director of PIBA Mortgage Services Rachel Doyle said interest rates were still low in historical terms.

“There are still good long-term fixed rates available but there are some dark clouds on the horizon,” she said. “Anyone seeking security around the level of their future mortgage repayments should act now in terms of reviewing their options. There is also much speculation in the market around lenders merging, which would further narrow competition.”

She warned about the risk associated with short-term fixing. “Such a short-term fix is not advisable; you could, if rates rise as they are likely to do, expose yourself to too onerous an interest rate at the end of that relatively short period.

“Even if property prices have not reached the bottom yet, delaying a buying decision could mean that interest rate increases could work out more expensive, over the longer term, than the benefits derived from a further property price drop.”

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