Dr. Mark Cassidy:

It is something that will be on our minds. Regarding the short term, we published projections for inflation and the outlook is for it to remain modest in the coming years. The announcements of the European Central Bank, ECB, on how long it expects to support monetary policy, both interest rates and asset purchases which put further downward pressure on Government borrowing costs, have clearly noted that support of an accommodative policy will remain in place for a while. The asset purchases and interest rate will remain until at least March 2022 and possibly longer, depending on Covid. The ECB projections are for inflation to be still below the global target of close to 2% by the end of its forecast horizon of 2023.

We do not expect to see the trends of higher inflation and higher interest rates in the short term. Some of the risks of higher interest rates have been mitigated by the bond issuance of the National Treasury Management Agency, NTMA, which leaves our maturities and need to roll over debt in a very favourable position. However, it is also the case that inflation and interest rates will increase at some stage. The resilience of the economy will depend on how well placed it will be to withstand that. I point particularly to the increase in interest rates. If public sector debt is high, and the Irish Fiscal Advisory Council published a useful document on this recently, there is significantly more vulnerability to higher interest rates when they occur. At some stage, they will occur although I certainly will not put a time frame on it. It is important that the economy is well placed. This means that public sector debt should be lower than it is now when interest rates increase.