Dr. Kieran McQuinn:

Our Central Bank is limited as inflation and monetary policy are conducted at the level of the euro area. The base rates or key policy rates are determined at the level of the euro area and, for good or ill, they are determined on the basis of what is happening across the euro area economy. I made the point earlier that since we joined the euro area, we sometimes have a disconnect between how our economy is performing and how the euro area as a whole is performing. That issue can have implications for the impacts of monetary policy because it is set at a euro area level and is not always specific to the problems of individual countries like Ireland.

If we look at the commentary of the European Central Bank, from its president to its chief economist who gave a significant speech recently, it is evident that the ECB will not raise rates over the next six to nine months. It is cognisant that the recovery across the euro area is still at a nascent or early stage. The ECB is afraid that if it were to raise rates, it would choke off the recovery and have a negative impact on it generally. It is also probably cognisant that if it does anything on policy rates, there is a danger that it could have a knock-on effect on the rates that the sovereigns face when it comes to borrowing.

Obviously, a lot of sovereigns and individual countries have been increasing their borrowing quite significantly over the past year. We do not want any tremors as far as sovereign rates are concerned because that could have quite an adverse impact on sentiment and the perceived sustainability of the increase in borrowing that many countries have engaged in. I do not think the ECB is going to engage in any policy increases or make changes to its policy rates over the next six to nine months. Of course, there is the issue of the other policy which it has at present, namely, the asset-purchasing schemes. There may be some pressure brought to bear on the ECB to taper or start to reduce those asset purchases. However, I do not envisage any immediate effect on policy rates until the summer of next year at the very earliest.