Interest rates

Dannyboy83

What are the economists saying is going to happen with interest rates in the short to mid term future?

Will there be a big gap between Irish banks and the ECB?

When is it predicted that interest rates will peak?

I've been doing a lot of reading, but opinions seem to be totally conflicted.

nesf

Most predictions I've been hearing have been for early-mid 2011 before ECB rates rise. No predictions on peaking as we're at a bottom at the moment in terms of rates.

Irish bank rates will continue to stay well above the ECB rates as it's expensive for banks at the moment to procure funds. Until the inter-bank market settles down to pre-recession levels you won't see very tight Irish rates.

noodler

Sorry to steal the thread but does anyone know the name for the quivalent ECB rates in Japan and the US?

I am having trouble finding data for the last 5 years.

Eurostat has annual (averages I guess) but is missing Japan/US from 2006 onwards for some reason so I am trying to work out the relevant annual figures I am missing.

http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&plugin=1&language=en&pcode=tec00096

Much obliged - I really thought this would be something I'd have done in 5 minutes and now I am at it an hour.

Économiste Monétaire

The Fed has a target on the Federal Funds Rate, and the BOJ's policy rate is called something like "the basic discount rate and basic loan rate," if I recall correctly.

Économiste Monétaire

Here's a link to the BoJ policy rate history:

http://www.boj.or.jp/en/type/stat/boj_stat/discount.htm

CSV versions here:
http://www.boj.or.jp/en/type/stat/dlong/fin_stat/boj/index.htm

Target on the Fed Funds rate:
http://www.newyorkfed.org/markets/statistics/dlyrates/fedrate.html

Effective Fed Funds rate:
http://research.stlouisfed.org/fred2/categories/118

Daily, weekly, monthly.

noodler

Wow, thanks for the effort.

1) US:

I can't work out how the eurostat link I gave came uo with their annual figures. Take 2006 for example, that Eurostat link says the 2006 rate is 5.25%. However, if you look at the data provided in the monthly data you linked to, you don't get that figure as an average when you add them up and divide by 12 in 2006.

2) Japan:

Unsure how to read those figures: I can't understand why they are not up to date. I mean the rate is under 0.1% last time I checked but of course the link only has data to December 2008 (seems sporadic too.).

Thanks though.

Économiste Monétaire

Eurostat seems to take the rate as stated at the end of the year, rather than taking an average. The BoJ is a bit different to the ECB in how it operates, the rate I linked above is the 'old' policy rate which Eurostat is referencing in that table. The 'basic loan rate' is a sort of upper-limit on the money market rate it targets. The official rate the BoJ targets is on the 'uncollateralised overnight call rate', basically the rate at which banks lend to each other, usually to be repaid the next day. You should search their website for a list of previous target rates; the current target is 0.1% (the 0.1% you're talking about).

The 'basic loan rate' is equivalent to the Fed's discount window, rather than their target on the Fed Funds rate. Eurostat is listing the target on the Fed Funds rate for the US but the basic loan rate for the BoJ; it should really use the BoJ's target on the overnight rate.

noodler

Alright last question.

Is Eurostat using the Marginal Lending Facility because it is the most comparable? I certainly thought it was the fixed rate refinancing one which was the most important.

I mean we know BOE rates are at 0.5% from the media and the same with 1% for the ECB. However eurostat opts to use that 0.5% for BOE but then uses The Marginal Lending Facility for the Eurozone.

If I made a graph comparing thw two, surely I should replace what eurostat have in there with the fixed rate?

Économiste Monétaire

They should use the minimum bid rate (variable/fixed rate), I don't know why they're using the rate on the marginal lending facility.

The rates I would use: For the US, the target on the Fed Funds rate; for Japan, the target on the overnight call rate; for the ECB, the minimum bid rate; and for the BoE, the Bank Rate.

noodler

http://epp.eurostat.ec.europa.eu/cache/ITY_SDDS/EN/irt_cb_esms.htm

They have a table there (its just the metadata explanation of the original eurostat link I was using) which they essentially call the US, BOJ and BOE rates you have listed as the equivalent to the 'Marginal Lending Facility' as opposed to the "Main Refinancing Rate'.

Is it very presumptuous to assume they have made a mistake there? I dunno, maybe I will have to send an email and wait yonks for a reply.

Thanks for the input again.

Économiste Monétaire

Looks very wrong to me. Two quick points: First, the BoE has a standing facility distinct from the Bank Rate that's 100 (or 25) basis points above or below the Bank Rate. Back in 2006, the BoE changed its operational framework. Now we're told of a 'Bank Rate', which is publicised as 'the' interest rate (like 'the' interest rate the ECB sets). The Bank Rate is used in the BoE's weekly repos, but it's also used as a sort of deposit facility. In the UK, banks have to keep a required level of reserves over a 'maintenance period', which is about a month in length. Over this period, they need to average their reserves to that level, within a margin of error of 1%. At the end of the month, banks are remunerated for keeping reserves with the BoE at the Bank Rate.

Second, a target on an overnight money market rate is not a ceiling on that market, that's what the discount window is for, although this is collateralised. Look at the effective funds rate I linked above and you'll see it can go above the target rate.

I would use this table:

Euro Area| Marginal Lending Facility | Deposit Facility | Main Refinancing Operation Minimum Bid Rate
UK| Bank Rate + 100bps | Bank Rate - 100bps | Bank Rate
US| Discount Window | Interest Rates Paid on Excess Reserve Balances | Federal Funds rate
Japan| Basic loan rate | Interest Rate Applied under Complementary Deposit Facility | Uncollateralized Overnight Call Rate