Mr. Gabriel Makhlouf:

I thank the Deputy for her question. I do not think that there are any differences between Mr. Philip Lane and me on the question of raising interest rates now. I spoke to him, I believe, last week. I still think that that is the right position. If the Deputy reads the remarks I made yesterday, I hope that they are a little bit clearer than the headline in The Irish Timesperhaps was.

Fundamentally, increasing interest rates today would be a mistake. On the evidence that we have today, and I emphasise and underline the word “today”, the factors that are driving inflation and the answer to them is not to raise interest rates because that would impact the recovery, slow down economic growth, have consequences for employment and, ultimately, have the completely opposite effect to the one that we would want. Mr. Lane and I would completely agree on that.

What I have been saying is that we need to be vigilant. If we take a step back, we are in a pretty unique situation today, not just in Ireland or the euro area but in much of the developed world. We went into an exceptional economic shock in March 2020 when governments decided to close down both demand and supply across the world, and did so voluntarily. I remember saying at the time that I could not find an example in history of that having happened before. I do not believe that that particular situation has happened before. That unique situation is reflected in the world that we are in today, which is that we are coming out of this pandemic, which was a unique experience, and the way we are doing that is putting unusual pressures around economic activity, whether it is the supply bottlenecks that we have discussed or the sudden increase in demand that is being experienced. As I said earlier, we see those factors as temporary. The right response, therefore, is patience. If we are right, we will see those pressures recede. The wrong response today would be to increase rates.

On the other hand, if the evidence we see starts to suggest that there are structural changes happening to economies that are going to see inflation persisting, or if we see the current temporary inflation start feeding into wage pressures which are not supported by productivity increases, we will then be exposed to a wage price spiral and to inflation persisting and becoming more permanent.

What I have been saying, and what I said yesterday, which The Irish Timesreported today, is that we need to be vigilant about the circumstances we are in, pay very close attention to the evidence and respond without delay if we see that evidence changing. That is the sort of point I have been making. People will make similar arguments in different ways and there will be different points of emphasis. Reference was made to Mr. Philip Lane. He and I may have different points of emphasis but we are pretty aligned on the fundamentals, as is the governing council of the European Central Bank, ultimately.