Interest rates will have fallen by another half percentage point by the end of March, if economists working in the international money markets are correct.
In a recent Reuters survey the consensus was that official interest rates would be 2.75 per cent by the end of next March from 3.25 per cent at the moment.
That would lead to further substantial cuts in mortgage repayments for Irish homeowners. According to Bank of America economist, Mr Lorenzo Codogno, the European "economy is going to deteriorate faster and the ECB, although reluctant to deliver another substantial cut, will have to catch up by the first quarter of next year."
He is expecting the first cut in December, but says there is a clear risk they will not deliver. "So, they will have to do the whole lot in the first few months of 2002."
Many economists say real interest rates are too high to kick-start the economy. Real rates, taking account of inflation, are only around 1 per cent.
However, others warn that the consensus may be wrong. And expectations of another half percentage point cut are no longer shared by the futures market.
Bank of Ireland's chief economist Dr Dan McLaughlin says that rates are unlikely to be cut so much and may in fact start heading back up before next summer.
As recently as last week, the futures market was pricing in rates at 2.75 percent by March. All that unravelled as the market decided the war in Afghanistan would soon be over. Futures prices currently anticipate no further cuts.
If that continues it will mean that longer term interest rates will start moving up, pushing up fixed rates over two and three years.
As a result Dr McLaughlin argues that now is the time to fix all or part of your mortgage. Certainly fixed interest rates are available at quite attractive levels, with both Bank of Ireland and AIB offering three year fixed rates at 4.99 per cent, a very low rate historically.
Of course variable rates are currently below this level but there are few who believe they will stay that low over say three years. Of course if they do you will lose out.
It is also important to remember that you lose a lot of flexibility when you lock into a fixed rate and substantial early repayments are often now allowed.
The ECB is assuming growth is going to pick up strongly in the second half of 2002 and that rates are now low enough. If that is correct then rates may not fall again.
But of course this assumes the US economy will recover around the middle of 2002. This is where the risk lies and is why other pessimistic voices may be right.
Some analysts warn that if the pick-up does not happen, the global economy will not just be slowing down. "It will turn into something very nasty called a global depression. Then the only real bottom for euro zone rates is zero," said one.
The consensus is for rates to remain stable at 2.75 per cent until June next year. But from September onwards, economists expect the ECB will respond to signs the economy is back on track by pushing rates back up to 4.25 per cent by September 2003.
All rates correct at time of writing
