Any increase in interest rates will have implications for the Irish economy, and more specifically for the stability and soundness of the Irish financial system.
Ouch!! The report goes on to say...
Over the medium-term horizon (three to seven years approx), however it is likely that the euro area economy will revive and will see a much higher equilibrium real rate of interest. A steady state growth rate of 3 per cent, combined with an inflation rate of about 2 per cent (consistent with the ECB’s inflation objective) and a risk premium of 1 per cent would add up to an equilibrium mortgage rate of approximately 6 per cent. With the typical variable mortgage rate of interest being around 3 per cent now (October 2005), an increase in interest rates to this putative equilibrium level would double the repayments burden. For highly indebted borrowers, this would be an intolerable burden and would almost certainly mean a sharp increase in the ratio of non-performing loans. The full report is available online here
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