Interest rates will be back at current levels by the end of 1999, according to the latest predictions from AIB Group. The Bank says that long-term interest rates - which indicate where the markets believe rates will be in the months and years ahead - have reached the bottom of the cycle.
According to Mr John Beggs, chief economist at AIB, euro interest rates could be in excess of 6 per cent by the end of 1999.
At the moment, Irish rates stand at 6.25 per cent while the German equivalent is only 3.3 per cent. However, the German five-year rate is already as high as 5.5 per cent, only marginally below the Irish rate at 5.8 per cent.
Most Irish businesses and personal customers focus largely on short-term rates which could fall by as much as 1.5 percentage points before the end of next year Long-term rates would rise, he said.
Mr Donal Forde, head of AIB corporate and commercial treasury, said companies with long-term borrowings must give this serious consideration and put adequate protection in place.
Most of the banks had been working on developing their interest rate products in an attempt to raise business levels, as foreign exchange activity falls off after the single currency.
Mr John Rice, chief dealer at AIB, said many Irish companies did not have a policy for managing interest rate risk.
Mr Forde was speaking at the release of a new AIB video - Protecting Your Interest - which is designed to inform borrowers of the risk associated with their borrowings.
Mr Beggs added that the debate was not really about whether to fix a loan or go with a floating rate one.
"This is applicable to any company with business loans going into future. They are looking at a benign environment where rates here and elsewhere are already quite low. But they focus on rates coming down all the time and might miss out on what is going on elsewhere."
He added that customers were becoming more interested in caps and collars. These loans allow customers to possibly gain from a fall in rates while being protected from a rise or from other uncertain situations or unexpected fluctuations.
Many Irish corporates, particularly property companies, are looking to fund over the longer term.
The video takes a three-step approach to managing interest rates.
