Real Estate Alliance

REA call on the banks to pass on rate cuts

“High EURIBOR rates have been cited by Irish banks as a reason why interest rate cuts have not been passed on in recent weeks and there must be firm measures made to encourage to the marketplace to re commence lending.”  Said Healy Hynes of Hynes Real Estate Alliance, Athlone. 

To highlight the issue, Mr. Hynes pointed out that on Monday 15th of December banks deposited €178 billion with the ECB rather than lending the funds on. 

Mr. Hynes’ comments echo those of the European Central Bank president Jean-Claude Trichet, who said on Tuesday that the bank is considering cutting its overnight deposit rate in a bid to stimulate interbank lending.

Speaking at the International Club for Frankfurt Business Journalists, Mr. Trichet said the ECB was examining whether to decrease the overnight rate, which, at 2%, is 0.5% lower than the benchmark 2.5% lending rate. 

Although Mr. Trichet refused to be comment on whether an announcement on this would be made at the January ECB meeting, he did repeat his call for banks to pass on interest rate cuts into their lending rates.  "We have to concentrate on getting what we have already decided operational," he said.

Illustrating the ECBs obvious frustration that 175 basis points of cuts in two months have not been fully passed on. 

“Rates in the Eurozone are the highest in the Group of Seven of major industrialised nations”.  Mr. Hynes continued, “ and with the American economy moving closer towards a zero nominal rate, aggressive steps need to be taken”.

In its 10-year history, the ECB has not cut rates below 2 percent, nevertheless Mr. Hynes is anticipating the ECB to drop rates at the January meeting seeing a target of 1.5% by mid-2009.  “Although it was on the cards before this week, in light of the Feds historic move to a rate of 0.25%, the ECB only has one place to go, and that’s down”

Although they gather the greatest headlines, Mr. Hynes pointed out that interest rates are not the only tool available to the ECB, highlighting that at the last ECB meeting President Trichet said the bank was prepared to consider options other than rates of rates. 'If new decisions are needed, we will take new decisions,'

Mr. Hynes feels the ECB should follow the U.S. Fed and start buying corporate or government debt to bring down yields even before rates dropped. However unlike the Fed, the ECB could face accusations of favouritism if it picked one eurozone countrys’ debt above another.

Mr. Hynes has therefore suggested instead that buying corporate debt would have a more direct and less politically sensitive impact, particularly buying Irish Bank bonds.  “With bank bonds now backed by Irish government guarantee, ECB investment into the banking sector would have direct effects on liquidity.  Banks confidence would also increase as they would be assured that maturing notes could be rolled over.”

Commenting on the bank capitalisation scheme now unveiled by the Irish government Mr. Hynes has cautioned that action can still be taken to address the insecurities in the banking sector.  “We do not want to see a repeat of the Japanese experience here.” He said.    “Although it does appear as if lessons have been learned from the US experience, the Irish government should continue working through ECB channels to affect change in addition to encouraging private sector alongside the  taxpayer equity stakes now being taken.” He says. 

“Just because we are now part of the Eurozone and these tools are no longer within the remit of our central bank; does not mean we should not try and enact them.” He continued.  “Our representatives, both on the board of the ECB and at ministerial level should be working through the ECB to secure all options to recovery.”

NOTE TO EDITORS

Real Estate Alliance is a strategic marketing alliance comprising some of the country�s best-established auctioneers and estate agents. Our key focus is on locally-owned and established estate agents. With one quarter of the alliance�s firms in business for more than a century, and with an existing IAVI president & five IAVI past presidents among the group�s members, the alliance is characterised by the established strength of its membership. In addition, membership is only open to firms led by members of the Irish Auctioneers & Valuers Institute or the Society of Chartered Surveyors.

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