Panic over rising Euro interest rates
So the media, and even the banks, have been provoking mass panic about tomorrow's likely quarter point rise in the Eurozone base rate. Now I can understand journalists not knowing how the markets work, but the banks?
Just a quick summary - market rates rise and fall in accordance with the economists' expectations of Central Bank decisions. Those economists have been expecting a quarter point rise in interest rates for months now. So rates have been creeping ever nearer to 2.25% in anticipation of the ECB decision. Many homeowners and other borrowers are already paying the higher rate, because their revision date has occurred since the market has been reflecting the expected ECB rate increase.
What will be the practical effect of a quarter point rate rise tomorrow: NONE WHATSOEVER. The ECB decision tomorrow is only newsworthy if the rise is not 0.25%.
Admittedly this is not an easy concept for many people, but the media should show some care in what they say. If they can't explain a subject adequately, they shouldn't bring it up!
2 comments:
No effect whatsoever?
True enough (especially with the euro weakening) but if that is the case, then WHY RAISE AT ALL?
The media is justifiably obsessed with this story - precisely because the ECB has not found a compelling narrative to explain its actions.
Sure, central banks are independent, but by their own admission, they owe us clear explanations. M. Trichet?
We just have to wait and see. Until then relax and enjoy the rain.
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