Cliff Taylor: Will cost of mortgages continue to climb?
This is all now about confidence. The European Central Bank pushed ahead to increase its key interest rate last week by half a point as it wants to keep bearing down on inflation. But its governing council will also have realised that if it did not go ahead, then investors would reckon it was worried.
Now markets anticipate only a small increase from the current 3 per cent level – in other words they are currently pricing in the possibility of at most one more quarter-point interest rate rise. We should note that these forward prices swing around a lot and should only be taken as rough indicators.
Many market analysts argue that European banks are generally solid, with strong capital ratios under regulation tightened up after the financial crash. Irish banks, in particular, have high levels of sticky consumer deposits – which rose sharply after Covid-19 – and do not have high levels of exposure to riskier lending areas such as commercial property.
He says that if the crisis passes relatively quickly, attention of central banks must then turn back to addressing the inflation problem.
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