Bank of Ireland is expecting interest rates to rise by 1% to 1.5% over the next six to 12 months, farmers have been warned by the bank’s head of agri Eoin Lowry.
Lowry told the Irish Grain Growers Group (IGGG) that lenders' days of charging historically low rates of interest on loans are likely coming to an end, but that a significant slowdown in inflation or a winding down of the war in Ukraine could ease the magnitude of the increase.
An IGGG discussion heard at the Ploughing on Tuesday that farm investment has already began to slow, with this slowing of cash being driven primarily by falling demand for credit on the farmer side of the lending equation, rather than the bank’s.
“We haven’t seen interest rate rises for the past 11 years, so I think, obviously, we have bottomed out now where we are at historically low levels,” he said.
“I would agree that we are going to see that maybe going to 1% to 1.5% of an interest rate rise over the next six to 12 months.
“Look, we are in very uncertain times with the caveat that we don’t know, you know.
“If the war in Ukraine ends tomorrow or if inflation comes back significantly over the six months, we could be having a different conversation this time next year," he added.
No getting around hikes
Lowry went on to say that those who intend on borrowing in the short-term would not necessarily be able to avoid the expected interest rate rises by borrowing under fixed interest rates.
Banks have already planned for these anticipated hikes from the European Central Bank (ECB) in the rates offered for such loans, he claimed.
“I suppose, what has built into the market, particularly since the start of this year, is that the rates for fixing your loans at the moment have increased significantly compared with the end of last year,” Lowry continued.
“So, the market knows and has built in that the interest rate rises are going to happen and the fixed rates reflect that. If you are fixing today, the interest rate is going to be 2% to 3% higher than it was six months ago.
“While fixing is an option and it gives you certainty, it should be there not to try to beat the market but just to give you that certainty over the long run.”