Sir, – You had three very interesting and inter-related headlines on the front page of the business supplement yesterday ( February 3rd).
The first commented on strong Christmas spending by consumers, the second on the ECB’s latest interest rate increase and the third on a need to tighten fiscal policy if the economy continues to overheat.
A critical feature of the use of interest rate hikes to curb inflation is that consumers are encouraged to save rather than spend by receiving more attractive savings rates, thus taking money out of the economy. However, while it is clear the banks are quickly passing on the increases in interest rates to borrowers, they are not doing the same for savers. This will have an effect on investment but not on consumer spending, as evidenced by the strong sales at Christmas.
If investment is curtailed while consumer demand remains high then this can only feed into inflationary pressure and a stifling cycle of interest rate rises.
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The question is why are the interest rate rises not being passed on to savers.
Could the banks be profiteering at the expense of the economy?
Perish the thought. – Yours, etc,
SEÁN LEAKE,
Terenure,
Dublin 6W.
