Interest rate predictions

I am a very cautious investor, in my late 70s, and I am only interested in keeping my savings on deposit. I have foreign currency deposits in both US dollars and sterling. I read a recent article of yours suggesting one should consider also deposits in the euro. What are your predictions for the rest of this year on interest rates in the three main currencies and should I be taking out 12- or 24-month fixed deposits now?

Although your question refers to interest rates, the fact that your deposits are in foreign currencies means that you must not ignore exchange rates either. Firstly, as regards US dollars, I would suggest you keep any funds you hold in US dollars in that currency for the foreseeable future due to its relevant weakness against sterling and the euro.

The Federal Reserve has maintained interest rates on the dollar at 1% all this year. There is now however a strong indication that rates may increase 0.25-0.50% in the near future. The next meeting by the Fed is on Wednesday and if they do not agree a rise at that meeting then I would expect them to raise interest rates in July.

Sterling interest rates are at 4.5% and I would predict further interest rate rises of 0.5% by November, bringing the base rate to 5%. Recent rate rises have not dampened the growth in the UK economy and while house inflation is slowing down, a further 0.5% rise could be sufficient to steady the property market.

In the case of the euro, I do not see any interest rate increases this year. I would expect these to be kept on hold at their present levels with a small chance that the ECB may actually cut rates by 0.25% in the next two months.

My predictions are therefore for interest rates to rise in the case of the dollar and sterling and remain steady or slightly decrease in the case of the euro. In this case, I would recommend only short-term deposits of one month for dollar and sterling, and review the situation towards the end of the year, at which time you may get a better fixed rate of interest than you would do at present.

In the case of the euro, you may wish to consider a 12-month deposit now, if there is the risk of a cut in rates in the near future.

Fixed deposits for 12/24 months do offer the security of knowing exactly your rate of interest but I would not rush into such long-term deposits if my predictions are correct. I would also emphasise that any predictions quoted must not be taken as fact. Such opinions can also change very rapidly depending on day to day market data.

Mark Hollingsworth is the director of Hollingsworth International Financial Services - licensed by the MFSA to provide investment services under the Investment Services Act 1994 (IS/32457). Address any financial questions to: Mark Hollingsworth, c/o The Sunday Times, PO Box 328, Valletta CMR 01. Alternatively, he can be contacted on 2131-6298/9984-2614 (office hours) or e-mail mh@hollingsworth-int.com.

Past performance is no guide to the future and, except where amounts are guaranteed, the price of your investments (and the currency in which it is denominated) may fall as well as rise. Your personal tax situation will depend on residence. Always consult a professional adviser. This article does not intend to give investment advice and its contents should not be construed as such. Readers are encouraged to seek professional advice on their personal financial situation.