Professor Michael McMahon:

I have very strong views, so I am very happy to offer them. I will make a few points. Interest rates in nominal terms have gone up, but in real terms remain very accommodative. The last years have seen very low real interest rates and they remain low, even with the increases. The second point I would emphasise is that you do not have to look very far - a look across the sea - to see that when policy institutions lose credibility, the interest rates people face will go up anyway. The Bank of England has raised interest rates 200 basis points, but mortgage rates have gone up by 450 basis points. They are the interest rates that really matter for households and businesses. Mortgage rates in Ireland have not gone up by that much in the period the European Central Bank, ECB, has been raising rates. Other interest rates have so I think there could be more. We will probably see still more increases from central banks because they are worried about their inflation fighting credibility. If that is lost the nominal interest rates people charge from banks are going to go up anyway, so the pain comes. However, later on in the process when inflation comes down, which we agree it will and the Deputy has emphasised its temporary nature, it will weaken the ability of the Central Bank to lower interest rates and provide stimulus when inflation is under control.

I will emphasise the two points. Monetary conditions remain very simulative relative to some pre-financial crisis period we had in this country. Second, it is also really important these institutions retain their credibility for fighting inflation. If they lose that then we pay costs without getting future benefits.