It is hard to hear that the European Central Bank has no intentions to lower rates, especially considering the economy’s current struggles with property prices on the decline and a banking market that is still under lots of pressure.
On Thursday (May 8th), the European Central Bank met to discuss its policy of interest rates, and it was here it was revealed that there were no plans nor desire to lower these interest rates.
It could be said that after pledging membership to the euro, Ireland was counter productive with interest rates. When the economy of Ireland was flourishing, the European Central Bank decided to cut borrowing costs to an all time low.
If Ireland was still in charge of its own interest rate policy, the Central Bank of Ireland would have probably decided to raise its interest rates to at least 8 per cent to try and slow the economy down, but after having signed up to the euro, the European Central Bank sets all of the interest rates and Ireland has no real say in the decision.
Today, Ireland’s economy looks to be slowing down quickly, and a cut in rates would be highly welcomed. However, the European Central Bank is flat refusing to move on where it stands.
Current arguments say that inflation in the eurozone is much too high, being at over 3 per cent for a number of months.
The single direction of the bank is to keep the rise of the cost of living as close to under 2 per cent as possible, and as such, the bank has no desire to lower any rates, despite the European economy slowing down rapidly. It is now very clear to all that the Irish economy is not going to be given any help of any sorts in the next few months from the European Central Bank.
However, the European Central Bank does seem to acknowledge the worsening state of the economy, and the outlook is looking bleaker as time goes on. Along with this acknowledgement came a hint that perhaps a series of cuts in the interest rates are likely sometime in the future. But whether or not this will happen before the end of the year is negotiable. A large number of economists are expecting that some move on rates should be seen by before the year is out, or at the very latest, the beginning of 2009.
It is believed that the European economy will continue to slow, as the United States’ slowdown impacts nations all over the globe. This should, in theory, bring to a halt worries over inflation, and to allow the European Central Bank to cut rates and support the Irish economy, amongst others – especially the housing market. However, unlike the US, the bank has no plans to cut the rates a full 3 percent.
Since this slowdown took hold last August, the European Central Bank has put all rates on hold, ignoring all the pressure placed over them to lower them. The Federal Reserve on the other hand, has cut rates from 5.25 per cent to 2.25 per cent since last September, trying hard to give assistance to the banks who caused the pressure in the market.
The US decline was a rather chaotic event, and in contrast, the European Central Bank seems to be managing the problems in a much more careful manner. This does not offer much comfort to Ireland, as the economy continues to fall lower and lower.
It isn’t surprising that people are wishing for Ireland to have control over its money policy once more.
No matter what the European Central Bank is doing with interest rates at the minute, it is certain that Ireland joining the European Union and member to the Euro currency has been most beneficial in reshaping the Irish economy. However, it does seem that as the euro expands, its policy will be harder and harder to maintain as more countries join in to share the Euro.