Dr. Gillian Phelan:

I will begin with the first part of the question and speak about monetary policy transmission and the lag we often hear about. Ms Lagarde, the president of the ECB, often speaks about the two legs of monetary policy. The first leg is the transmission of ECB policy rates into financing conditions. This is part of what we are looking at in terms of interest rate pass through for the banks. We are quite early in the cycle in terms of tightening but we are already seeing some impacts. We are seeing increases in rates and falling lending as Dr. Kelly has spoken about. We are seeing this pass through to new lending and to outstanding amounts. We are seeing effects on balance sheets. Moving on to the second leg, we are speaking about the transmission from financial conditions into the real economy and how it affects growth and inflation. Much of this has not happened yet. We are waiting to see some of this. These are what we speak about when we speak about long and variable lags.

Deputy Conway-Walsh asked about how long these lags are. From experience, we would say that they are somewhere between 18 and 24 months. One has to remember there was an interest rate hike just last week and we have also experienced hikes all the way - they started back in July. All of that cumulative effect will take between 18 and 24 months to feed through to growth and inflation. A lot of the inflation reduction we have seen so far is mainly just a result of energy and food prices coming down. As I said, we will only see the monetary policy action starting to impact further ahead.

To pick up on the Deputy's question about interest rate pass-through and what we are seeing, this is one part of the first leg of that transmission. As Dr. Kelly said, overall we are seeing quite strong pass-through in Ireland and the euro area. As Dr. Kelly also said, it has been stronger for businesses than it has been for households. For Ireland, there are probably two main exceptions. The first is in the interest rate pass-through, the rates that are being passed on to households for their overnight deposits or the money that we have in our current accounts. The second is on new mortgage lending. We are also seeing that we are slightly weaker than the euro area in that respect.

The Deputy asked about the factors driving this. In terms of deposits, I would issue a caveat that this is early evidence. We are watching this all of the time. We are keeping an eye on transmission but everything we say has the caveat that this is still early in the transmission process and we still expect to see some more.

Back to deposits, in terms of what we are seeing there in this cycle, banks, not only in Ireland but across the euro area, would tell us that slower pass-through is happening because they have a lot of deposits already and they do not really need to raise the deposit rate to attract more deposits. Evidence in the literature across history would say there are various other reasons banks might not pass on interest rate hikes. These could include lots of different things that we will have to unpack over time, such as the structure of the banking system, the availability of alternative products and digitalisation.

The main thing impacting pass-through in terms of mortgage lending is product type, that is, if it is a tracker, variable or fixed-rate mortgage. We have done some analysis on this. We have a scenario which was done before the last interest rate hike. If we assume interest rates increased by 425 basis points, we found that the impact on the average mortgage holder is an increase in repayments of 16%. This is not uniform. It is very different across mortgage holders. Approximately 40% of mortgage holders would not have any increase in their repayment and another 20% would see them increase by 50%. The 20% of mortgages that are seeing a 50% increase - that package of mortgages - would largely be trackers. They would have larger outstanding amounts, longer terms and just bigger mortgages overall. With all of this, it is early evidence. Monetary policy transmission is still happening. Even after we did some of that analysis, the banks had increased their interest rates further. We expect to see more of that in the time ahead.

Deputy Conway-Walsh also mentioned a little bit about profits in her previous question. We are also seeing this play out in bank profits. We would also expect early in the cycle of monetary policy tightening that banks would make bigger profits but as demand comes down, inflation comes back down and the economy slows, we would expect that those profits would recede as well.