Timing of first ECB rate cut in 4 years to become main market focus according to Bank of Ireland

- Euro at record high
- Likely decline in ECB repo rate in second quarter of 2008
- Fed expected to cut US rates further

In Bank of Ireland Global Markets' September Research Bulletin published today, (Thursday, 27 September 2007), Bank of Ireland's Group Chief Economist, Dr. Dan McLaughlin said he expected the first anticipated ECB rate cut to become the main focus for the financial markets over the coming weeks.

According to Dr. Dan McLaughlin: "Recent developments have reaffirmed our belief that we are at the top of the interest rate cycle. The euro has not only reached a new high against the dollar, above $1.41, it has also traded at record levels against a range of other currencies which has led its trade-weighted index to reach new levels. The strength of the currency had produced a tightening in monetary terms, and inevitably has led to a downward revision of economic forecasts, growth and inflation".

"Despite the ECB's decision not to increase rates in September interbank rates have continued to rise. The recent credit crunch which has transformed the international rates outlook now appears to be adversely affecting the entire economy including the money markets".

"Based on trends from the previous rate cycle in 2000 which saw a 7 month gap between the last rate rise and the first rate reduction, we estimate the ECB repo rate will decline in the second quarter of 2008. If this occurs, it will have a negative impact on the euro. We believe it is unlikely that the euro will reach new highs in excess of $1.41 due to excessive supply of euro in the market and lack of US dollar", concluded Dr. Dan McLaughlin.

Ends

Thursday 27 September 2007

For reference:

Damien Daly
Head of Strategy and Marketing
Bank of Ireland Global Markets
Tel:01 609 3221

Anne Mathews
Media Relations Manager
Group Corporate Communications
Bank of Ireland
Tel:01 604 3836 / 087 246 0358

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