Wednesday 24 July 2019

Editorial: 'Mortgage rate cut may be silver lining of dark cloud'

'Of course, the surprise move by Ulster Bank to cut rates is to be welcomed.' Stock image
'Of course, the surprise move by Ulster Bank to cut rates is to be welcomed.' Stock image


Practitioners of the dismal science are wont to find dark clouds in every silver lining.

Good news is pounced on and bludgeoned to within an inch of its life as soon as it is announced.

Thus while the prospect of across-the-board cuts in mortgage rates will be heralded in some quarters as positive, those with the temerity to look a gift horse in the mouth might be on to something.

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Of course, the surprise move by Ulster Bank to cut rates is to be welcomed.

After all, it should save the first-time buyer around €50 a month.

Irish home-owners have been paying the highest rates in Europe for way too long; so relief is overdue. To date lenders have been utterly impervious to all entreaties to ease the pressure on the backs of borrowers.

But the question might be asked as to what has finally brought about this change of heart?

The European Central Bank (ECB) is set to cut key rates, giving the banks the scope for reductions.

Again, the question has to be asked why they might be moved to do so?

And this is perhaps why the rate cuts may not necessarily be a good reason to crack open the champagne.

For if some react with cold fear to the return of a once familiar purr of a tiger in Ireland's economic engine, who can hardly blame them?

The reason the ECB may reduce rates is that while the eurozone is still set to expand - this year and next - there are risks "skewed on the downside", according to the European Commission.

To be more specific, we are talking about sluggish if not stagnant manufacturing in Europe's economic heartland, the disturbance of Brexit, and the real prospect of a trade war with the US.

All of which could have a disproportionate impact on this country.

The Department of Finance and the Central Bank have warned economic growth here could shrink to zero and 50,000 could lose their jobs in a hard-Brexit scenario.

And, according to the IMF, in the event of the US imposing across-the-board tariffs on imports, Ireland would be hit harder than any other country.

Nor does the outlook for China, or the escalation of tensions in the Middle East, offer much cause for comfort.

The commission rightly draws attention to our dependency on foreign direct investment and reliance on multinationals.

But even without any major external shocks there is the prospect of overheating, according to commission vice-president Valdis Dombrovskis.

The wisdom of banking on volatile revenue flows for the future could come back to haunt us, the commission cautioned.

We know how quickly fat surpluses can turn to slim pickings in the flicker of a stock market screen. We also still carry the scars from the allergy we developed to unwelcome facts, just as we still smart from our last "soft landing".

Irish Independent

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