Some have argued that the recent bout of inflation is a sign that we are finally getting back on our feet. But even if it is true, will this signal an end to easy money? Some say yes and some say no – but one thing’s for sure: There won’t be any quick fix when things start looking up again.
For now, interest rates remain low, and inflation in the EU is still modest. The European Central Bank will keep rates low and money flowing into next year. European Union finance ministers said that budget policy needs to stay loose to support the economy.
Economists in the US are at odds over a stimulus package of $1.9 trillion, with some saying it will have no impact on inflation while others say that is simply not true.
This pumping in of more cash than the economy needs risks sending inflation sharpy higher. Have you felt it in your pocket in certain areas?
Economists are predicting that the inflation rate will not increase in Europe, despite recent technical factors. The underlying forces driving prices remain low and government spending is nowhere near what it has been in America.
The Irish state has a unique opportunity to borrow at historically low rates
. The key issue for the State and for Irish Banks will be what happens when other European countries emerge from their economic slumps and interest rates on loans increase again. Personal credit, rates coming out of fixed mortgage loans and your pension performance are all linked to this.
Borrowing costs are likely to rise in time, but by how much is very hard to tell.
For Irish mortgage borrowers, all the signs are that interest rates will remain on the floor for the next couple of years.
In the case of commercial borrowing, it is more critical to the bank because this type of lending represents a larger proportion of its overall balance sheet.
The ECB may well want to see central banks act as lenders of last resort in times when markets fail and – for example – bank liquidity dries up. This could create an environment where interest rates move in one direction.
These low to negative interest rates are already eroding your savings in the bank, supported by inflation.
Your money is at risk by staying in a bank, if the purpose of it is to not be used in the next 5 years.