Written answers

Tuesday, 17 January 2017

Photo of Tommy BroughanTommy Broughan (Dublin Bay North, Independent)
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49. To ask the Minister for Finance his views on reports of possible rises in interest rates during 2017 in the eurozone, the US and the UK; the estimates that have been made for the impact on growth here in 2017 from these changing monetary conditions and from the winding down of quantitative easing by the ECB during 2017; and if he will make a statement on the matter. [1493/17]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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The latest positions communicated by the relevant central banks are as follows:

- The Governing Council of the ECB decided in December 2016 to keep the key interest rates in the euro area unchanged and stated that it expects interest rates to remain at current or lower levels for an extended period of time, and well past the end of this year.

- In the US, the Federal Open Market Committee decided to raise the target range for the federal funds rate from 0.5 to 0.75 per cent, and the Committee expects only gradual increases in the federal funds rate over 2017.

- In the UK, the Bank of England's Monetary Policy Committee, at its December meeting, decided to maintain the Bank's official interest rate at 0.25 per cent. 

It is important to stress that these central banks could alter their respective positions, in either direction, in response to changes in the economic outlook.

In this context, the Risk and Sensitivity Analysis chapter in the Irish Stability Programme April 2016 Update - published by my Department - included an illustrative assessment of the impact of a 1 percentage point increase in interest rates. The analysis suggested that such a shock would decrease the level of Irish GDP by approximately 0.3 per cent relative to the expected baseline level in the first year following such a 'shock'.  

In relation to non-standard monetary policies, following the meeting of the ECB Governing Council in December 2016 a decision was made to extend the end-date of the ECB's programme of Quantitative Easing (QE) until December 2017 at the earliest, or until a sustained adjustment to the path of inflation consistent with the ECB's stated aim of an inflation rate below, but close to, 2 per cent is observed. This is positive news for the Irish economy, which would be expected to benefit from both the reduction in borrowing costs and increased demand from key export markets, resulting from the extended QE programme throughout 2017.

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