The finance world has been upended by a steep fall in oil prices since the middle of last year. The effect that might have, combined with the prospect of the European Central Bank (ECB) creating €1 trillion out of thin air through quantitative easing, is unknown.

Alongside this, the Swiss National Bank caused currency turmoil when it announced it would no longer hold the Swiss franc at a fixed exchange rate with the euro. Impromptu interest rate cuts have followed from India to Australia and Canada to Denmark.

On the other side of the ledger, the prospect of a first US interest rate rise this year since June 2006 highlights the very different directions in which major central banks are heading. However, the old adage still applies that when the US sneezes, the rest of the world catches a cold.

Tighter US monetary policy will likely affect European market rates as well, but the damage should be fairly limited given that the US and eurozone are at different stages of the economic cycle. Indeed, it is hard to see the yield on benchmark German 10-year government bonds ending the year much higher than 1.0%.

Although the Irish economy is set to top the eurozone growth league table again this year, overall growth prospects for the region as a whole remain quite subdued, with the years of austerity continuing to affect consumer demand.

Combating deflation is now the main concern of the ECB and, unless there is significant upward movement in inflation over the next 12 to 24 months, then long-term market interest rates are likely to remain close to record lows. It is hard to believe that Ireland was last week able to issue its first ever 30-year government bond, at an interest rate of a little more than 2.0%.

Oil prices of course will be a key driver of inflation in the coming months and it does now appear as though they have bottomed out. The jump in the price of a barrel of Brent crude over the last two weeks was the largest fortnightly rise since 1998. However, even with the prospect of higher oil prices, eurozone inflation is unlikely to get back to the ECB’s target of just under 2.0% before 2017 at the earliest.

Therefore, the outlook for rates should remain fairly benign for the immediate future. Of course, one issue that could put a spanner in the works is the possibility of Greece leaving the euro.

So far, financial markets have been fairly relaxed about the whole issue, with little or no contagion to the other eurozone “peripherals” (Ireland, Portugal, Italy and Spain) as they are known. However, that could change if Greece did return to the drachma. Interest rates would rise, though it would be unlikely to be a major movement, probably no more than half a percentage point as European policymakers are now better equipped to cope with Athens going its own way than they were a few years ago.

Summary/outlook

It is likely to be the inflation trend in the eurozone that mainly dictates interest-rate policy in the short-term. The most recent data shows the eurozone consumer price index fell at an annual rate of 0.6% in January, which points to lower rather than higher rates in 2015. The outlook beyond that is harder to call, but any increase should be fairly minimal.

Irish banks charge more for loans

Rates charged by Irish banks for loans are a lot higher than their eurozone counterparts, reflecting the problems of the banking sector in recent years and the need to address balance sheet deficiencies.

The most recent figures from the Irish central bank show that the weighted average interest rate charged on new loan agreements to non-financial corporations up to €1m (often used as a proxy for SME lending) is around 5.2 %, two percentage points higher than the corresponding rate charged by eurozone credit institutions. The interest rates charged by banks on commercial business loans remain subject to the credit standing of individual borrowers, and will in the main be determined by the level of risk involved. That said, the direction of travel of rates should be the same as the eurozone trend. And market rates at least are heading down for the time being.