Your Money: Domestic help for borrowers

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The Independent Online
AFTER a week of ups and downs, today's vote by the French at least provides the possibility of an end to uncertainty.

Whichever way the vote goes, the betting is that we will stay outside the exchange rate mechanism for some time - if not for ever.

So with the pound finding its own level on the foreign exchanges, the British Government can pursue an interest rate policy aimed principally at the domestic market. And that surely means a cut in rates.

The question is whether we can expect a series of small cuts or one large reduction.

The gradualist approach would allow the Government to test the reaction to one cut before instituting another, and it has advantages in persuading institutions to fund the government debt.

But on the downside, it will bring further uncertainty. If there is a cut of just 0.5 of a percentage point, lenders will wait for the next half-point cut before they alter mortgage rates.

A 1 per cent reduction would be passed on immediately, however, even if it was felt that another 1 per cent cut was not too far behind.

Some economists believe that a cut of two percentage points is possible next week. That would have the advantage of establishing a new and apparently stable interest rate level.

THE stock market, which has put in strong rises in the last few days, is certainly expecting interest rate cuts.

Proshare, the lobby group set up to promote wider share ownership, was due to launch a new association for private investors this week. But it has postponed the launch, which is now set for next month.

'Once the association is in place, we will be able to help investors through difficult periods such as this, but we feel it would be unrealistic to discuss long-term investment during a short-term monetary crisis,' said a Proshare spokesman.

However, learning to cope with sudden and unexpected lurches in prices is an essential part of share ownership, and the last week has provided some interesting lessons.

Any investor who buys shares believing there is a smooth ascent to greater profits is bound to crash back to earth sooner or later.

Stock market investors who have been unable to read the market before it has been buffeted by yet another economic hurricane can call their stance 'masterly inactivity'.

At least they have watched the FT-SE 100 index move from 2,370.9 at the start of the week to 2,567 at the end - an 8.2 per cent rise.

SOME people who would never even think of investing in the stock market have joined in the fun on the foreign exchanges.

The US dollar has looked screamingly cheap for weeks.

Some people decided on an American holiday and bought currency and travellers cheques while the going looked good. One bureau de change, Travelex, even has a buy-back guarantee. This encourages travellers to stock up by pledging to take back up to 30 per cent at the same exchange rate without a commission charge.

If the rate has risen, you can still take a profit, and if it has gone against you, there is no loss. The company reckons it is worth the cost in extra business and persuading travellers not to rely on plastic cards.

Some travellers may have discovered that although they went on a shopping spree abroad before the rapid decline of sterling, their bills came home to roost at the new rate. The currency conversion is done when the bill filters through three or four days later. But a dozy shop could hold on to the slips and turn a bargain into a less than smart buy once the currency has worked its magic.

Other speculators stayed at home and asked their banks to swap their savings into dollars in hope of making windfall gain.

The Co-Op bank is not the place for those who like this sort of sport.

Managing director Terry Thomas presides over a bank that has taken a moral stand on animal experiments, blood sports and the like. He said: 'We made a policy decision not to speculate against the pound either with our own money or that of our customers. The enormous profits that you have seen bank dealers celebrating were almost certainly made at the expense of the taxpayer, as represented by the Bank of England.'

This may be true, but standing back from the fray while the Government makes ill-judged mistakes on our behalf is no good reason for not trying to redress the balance a little from a personal point of view.