European Interest rates to rise again in May.
The European Central Bank's most important policy is controlling inflation in the Euro area.
Inflation is dangerous. It erodes the value of savings and drives up the cost of living. It hits our pockets directly and has a major impact on interest rates.
Their primary tool in managing inflation is the setting of interest rates. Ireland like all other EU countries had seen mortgage rate rises as a result of rising European rates. Surprisingly our mortgage rates have risen slower than many other countries in large part due to the capital structure of our main banks.Our lenders have strong capital bases and finance their lending for the most part through low cost deposits.
The reason we are seeing higher interest rates is primarily because of inflation, Rates were artificially low before the Ukraine war and the energy supply crisis. These historic low rates had their origin in the fall out from the financial crisis which started in 2008 and led to an era of quantitative easing (printing money) to assist the liquidity in the economy. Base rates of 0% were never going to stay around forever with the ECB historically preferring a base rate of around 2%. It has recently jumped to 3.5% and will go higher in the short term and will remain high unless inflation gets under control.
Inflation rate statistics are available at European Inflation stats and it makes very interesting reading. The statistics show the various components of the inflation rate and it is interesting to see how these rates compare with your daily experience of rising prices.
The inflation rate is falling but still too high at 6.9% across the Euro area.
Spain has the lowest rate at 3.1% with Lithuania the highest at 17.1%.
The UK, which is outside the euro area, has an annual inflation is high of 10%.
Progress is being made but it is vital that inflation gets under control.Inflation is expected to move down to around 2% in a few years time.
The IMF have highlighted the importance of Government's role in tightening fiscal polciy as another way of controlling inflation.
Ireland's economy is performing well.
We are running huge surpluses due to massive corporation tax receipts.
This excess cash needs to be prudently managed, directed into long term productive projects and kept away from fuelling the inflation fire.
Their are generous incentives avaialble to encourage new house purchases. However, there is concern that costs remain too high and new houses are overpriced.