Professor Philip Lane:

I thank the Committee for inviting me to present a selective overview of the work programme of the Central Bank of Ireland. I will focus in particular on the domestic activities of the bank. As part of the euro system and the EU system of financial regulation, the Central Bank has heavily engaged with a wide range of European policy committees. In recent years there have been considerable changes to the mandate and structure of the Central Bank in response to the many lessons learnt from the domestic and international crises. With the passing of the most intensive phase of crisis management, it is now time to establish new priorities for the Central Bank. Our recently published Strategic Plan 2016-2018 provides a detailed guide to our plans for the next three years. Our mission statement, "safeguarding stability, protecting consumers", encapsulates the dual priorities of the bank in the period ahead. These are to preserve financial stability and ensure that the financial sector operates in the best interests of its customers. I will focus on the domestic side of the bank's affairs, but having said that, allow me to spend a moment discussing our role in regard to European Central Bank, ECB, monetary policy.

In common with similar initiatives by the other major central banks, the ECB has recently adopted a number of unconventional measures in pursuit of its inflation target. These include the expanded asset purchase programme, which is intended to run at least until March 2017. In implementing this programme, the Central Bank of Ireland has been actively engaged in asset purchases. At the scale of the euro system as a whole, total purchases of euro area public debt securities were close to €500 billion by the end of 2015, and that includes €7.6 billion of Irish sovereign debt. At the ECB level, I would argue that the accommodative module policy has contributed to Ireland's excellent recent performance. The low interest rate environment has been a boon to many indebted households, while the Government has been able to issue debt at low interest rates.

More generally, as indicated in its press conference last week, the assessment of the ECB Governing Council is that the module policy measures adopted since mid-2014 are working. Noting the increase in downside risks since the beginning of 2016, the governing council will review and possibly reconsider the module policy stands in early March. In regard to the longer-term agenda for the euro area, the crisis made clear that the original design of the euro area suffered from a lack of risk-sharing and crisis management mechanisms. While there has been significant progress in reforming the institutional set-up of the euro area, the recent Five Presidents' report highlighted that further reforms could help to improve the resilience of monetary union. This reform agenda should be a high priority for European policymakers.

With regard to the Central Bank's domestic situation, our latest quarterly bulletin was published this morning. It projects that the economy will continue to grow strongly this year, with GDP growth expected to moderate only slightly, to around 4.8%. This reflects confidence arising from several positive factors, including the employment-rich nature of the recovery, a less constrained policy environment, the boost to purchasing power from lower energy prices, the ongoing easing of the balance sheet legacies of the crisis and broadly favourable conditions in the export markets. It is the combination of these factors that has helped the current recovery. However, while much is improved, vulnerabilities remain. The strong growth outlook provides an opportunity to address the legacies stemming from still-high levels of public and private sector indebtedness. Externally, the main current risk factor relates to economic and financial conditions in some emerging economies. Closer to home, the Central Bank is also keeping a watchful eye on Brexit-related risks to the economy and the financial system.

Even in a period of good economic performance, the core issue remains the fact that a small, highly-globalised economy such as Ireland is inherently more volatile than larger economies. We can grow strongly for extended periods, but we are also especially vulnerable to negative shocks.

For this reason it is essential that the bank is proactive in the deployment of macroprudential policies that can improve resilience and mitigate the pro-cyclical dynamics associated with excessive leverage. The new rules that impose loan-to-value and loan-to-income limits on most mortgages were introduced to protect borrowers and contribute to a safer financial system. A safer financial system will in turn contribute to a more stable economy overall in the longer term. Therefore, the bank is firmly committed to deploying these tools on an ongoing basis with periodic reviews to ensure that the measures are appropriately calibrated. As I mentioned last week, I expect the first review of the rules to be published by November this year.