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Ryan Review


The ECB has only one mandate: keeping a lid on inflation. So terrified are they (and especially the Germans) of it that monetary policy has focused almost entirely on price stability.

So a tantalising question arises – are they more scared of inflation than deflation – the latter now a distinct possibility. Are we set for a Japanese or Danish-style money market where rather than making interest on your savings, banks will instead charge to keep them?

I posed the question at the UCC Economics conference recently, where I was a speaker.

Eminent economists such as Megan Greene and Lorcan Roche Kelly agreed that deflation was a far higher threat than inflation and such a scary prospect that all Mario Draghi can seem to do is wring his hands and promise it won't happen.

But for savers out there with substantial deposits – saving for a house, or in-between selling and buying – the prospect is bleak. What can they do?

Well firstly, deposit banking needs to be viewed as a money minding facility. Savings are safe to the limit of the Deposit Guarantee Scheme (€100,000). If you have more than this, spread it around a couple of accounts for a belt and braces approach.

Secondly, realise that even in the current environment, inflation is already making inroads into your money.

Deflation will make future purchases cheaper.

Such a situation would see ECB rates

initially move below 0pc, perhaps by 10 basis points.

If you don't need the cash for a few years, stick it into State Savings, still offering 1.32pc AER on three-year money. Any further chop won't be backdated.

If you need access, find a bank which is crying out for deposits.

KBC is offering 2.3pc on instant demand with EBS at 1.25pc. Others, like Ulster bank, are attractive at 1.85pc but with conditions attached.

Even with a deflationary cut, they'll suck up the losses, not you.

You won't make a fortune, but at least you won't lose out when Super Mario ends up making the hard decisions.

Indo Property