Brian Cowen (Laois-Offaly, Fianna Fail)

Mr. Trichet has been nothing but complimentary about the performance of the Irish economy at every meeting I have attended of either ECOFIN Ministers or euro area Ministers. Future interest rate policy is a matter for the European Central Bank and is not something on which I comment as a matter of policy. The European Central Bank has been excellent in its management of interest rate policy and the stance Mr. Trichet and other governors of the bank have taken has ensured the exchange rate credibility of the euro has not been undermined.

Rising rates obviously have an impact on mortgage holders. The Central Bank's recently published financial stability report concluded that a range of fundamental factors, such as growing employment and incomes, low inflation and interest rates have underpinned the pattern of mortgage growth and associated debt levels in the economy. Interest rates remain at low levels compared with any period in our recent economic history. For example, an increase of one percentage point in the current level of mortgage interest rates to approximately 5% would still compare favourably with average mortgage interest rates of 8.5% during the 1990s.

The maintenance of low inflation through the setting of an appropriate level of interest rates for the euro area by the European Central Bank benefits all consumers and preserves the real value of incomes and savings. The most recent financial stability study published by the Central Bank also emphasises the importance of responsible behaviour by borrowers and lenders in the form of factoring into their decision-making the prospective impact of potential changes in the future economic environment. In its recently quarterly bulletin the Central Bank warns that credit continues to grow very strongly, with mortgage credit accounting for a large part of this. I share the Central Bank's assessment of the importance of maintaining financial and economic stability.

The stability report to which I referred, which was published last autumn, showed the trend for mortgage repayments for first-time buyers over the past 15 years within a range of approximately 23% to 33% of household disposable income on a national basis. Irish house buyers benefit from a range of supporting factors, including healthy income growth, low income tax rates and relatively low level of interest rates by historical standards. Affordability is also supported by the strength of the economy, record employment levels and relatively high savings rates. The expected shift in the interest rate environment will impact on affordability which, together with the large increase in new housing supply, should support equilibrium in the market. It is important we present the results in that context.

Banks are required to stress-test at a rate above existing rates. It is also in the interests of financial institutions to have good loan books as that determines profitability in the longer term. The growth in credit is a matter for the Central Bank, particularly through its participation in the European Central Bank where interest rates are set. From the point of view of the borrower and the investor, the function of Government is to provide an appropriate legislative framework of regulation of the financial services sector that is comprehensive and robust. I am satisfied that, with the progress made in recent years, especially in the establishment of the financial regulator, with a particular focus on the interest of the consumer, we have such a framework in place.

See this speech in context