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eZine March 07
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Market Rates
There was something of a surprise for economists this month - no change in interest rates for the second month in a row. The widespread expectation had been that after January's surprise increase to 5.25% there would be another quarter point rise, if not in February then certainly in March, in order to reduce the likelihood of further rises later this year. Not so! The concern of course is inflation, though increasingly we are dependent on events in the USA, Europe and Japan, whose rates are certain to influence ours. All are on the up - apparently! As always, whether it's Mervyn King of the Bank of England or Ben Bernanke of the US Federal Reserve, the key to the future is in the minutes. What the outcome was is far less indicative than what was said at the meeting and why the decision was taken. For the UK, two points are significant:
At the same time as the UK and the European Central Bank are talking of raising rates, in the USA they are floating the theory that the next move could be downwards. The combination of these two is again driving speculation against the US Dollar, and the £ Sterling (GBP) rate is expected to hit or even break through the $2.0000 barrier in the next few weeks. With current interest rates at 5.25%, what is the market's view about the future? The best guides are the 3 month LIBOR (London Inter-bank Offer Rate) and 3 and 5 year Swap (fixed) rates. The first, at 5.53% (barely changed from last month) supports the expectation of a further increase in the short term, whilst the 3 year Swap at 5.54% and the 5 year Swap at 5.45% are both 0.2% lower than a week ago. Curious! The market isn't always right of course, and our rates will be affected by what happens in the rest of the world, both to interest rates and inflation rates, but for now there are still reasons to remain confident about the future. If these things interest you (how could they not?), you may enjoy a quick visit to http://www.bankofengland.co.uk/monetarypolicy/decisions.htm where they publish the minutes of the MPC minutes each month. As an aside, and a reminder of what used to happen when politicians managed interest rates, they remained above 10% from June 1978 all the way through to September 30 1982, peaking at 17% from November 1979 to July 1980. Although we are continually bombarded with predictions of house price melt down, we should never forget that, whether it happens or not, the key is to buy below market value. To rely for your profit on the market as a whole increasing will never give you that extra wealth you are seeking. In the hunt for BMV (below market value) opportunities, one of the best places to look is the off plan market, increasingly overseas. We can help you in your search! Forthcoming Dates:
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