Financial markets are likely to trade nervously when they open today ahead of three crucial meetings on interests rates by the European Central Bank (ECB), the Bank of England and the US Federal Reserve.
There is speculation that some or even all three central banks may increase their interest rates to slow down growth and choke off any inflationary tendencies in their respective economies.
For Ireland, the meeting of the ECB's 17-strong committee which decides on interest rates within the eurozone is of most significance, especially given the strong hints from the ECB chief economist, Mr Otmar Issing, and its vice-president, Mr Christian Noyer, that they favour raising interest rates.
ECB officials have been sending contrasting signals in the past week. First, the ECB president, Mr Wim Duisenberg, hinted at a tightening of monetary policy and then modified this to a more moderate tone.
Mr Noyer has been hawkish, while the Bundesbank president, Mr Ernst Welteke, has been more balanced in his view of the risks.
According to NCB Stockbrokers' economist Mr Eunan King, the ECB may wish to "take back some of the crisis-related rate reductions of late 1998 and early 1999, particularly if the US continues to tighten, even though the pace of growth is not robust on two of the big three European economies". While a majority of analysts believe that the ECB will maintain its interest rate unchanged at 2.5 per cent, some believe that the central bank may make a pre-emptive strike against inflation and hike interest rates by a quarter and possibly half of one per cent. "We could see a half-point increase in ECB interest rates next week because reports are showing faster growth and inflationary pressure," said Mr David Brown, chief economist at Bear Stearns International.
Of the 11 central bank governors in the ECB, six probably favour tightening interest rates based on their domestic economic circumstances. If these six vote in favour of a rate rise, just three of the ECB's six-strong executive board would be required for the nine votes required to raise rates.
The Irish Central Bank would, needless to say, be delighted if the ECB does raise rates as this might go a small way to taking some of the steam out of the housing market in particular. But even a halfpoint rate rise by the ECB would only claw back less than half the recent mortgage rate reductions since Bank of Scotland entered the mortgage market with its 3.99 per cent variable rate.
Jittery financial markets may dissuade the US Federal Reserve from raising interest rates yet again when its policy-making open market committee meets tomorrow to take the US economy's pulse, according to analysts.
"The Fed may be concerned that if they surprise the financial market with a rate hike, that might prove to be too damaging to the equity market," says John Lonski, chief economist at Moody's Financial Services.
The Dow Jones Industrial Average has shed 5.78 per cent in the third quarter of 1999, bringing Wall Street down nearly 12 per cent from its peak earlier in the year. "The Fed doesn't want to trigger a fall . . . The markets are well overvalued. They could be more vulnerable than realised to an unexpected rise in interest rates," said Mr Lonski.
UK interest rates may also rise next Thursday, when the Bank of England's monetary policy committee convenes. The nine officials voted seven-to-two last month to lift the bank's benchmark rate by a quarter-point to 5.25 per cent, the first increase in more than a year.
A central theme of the bank's discussions in London is likely to be Britain's buoyant housing market. Figures last week showed home prices surged by 11 per cent in the year to September.
