Written answers

Tuesday, 16 January 2018

Department of Finance

Departmental Investigations

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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186. To ask the Minister for Finance the studies, research or preparation that has been carried out by his Department or the Central Bank into the effects of a significant increase in interest rates over the coming years; and if he will make a statement on the matter. [54461/17]

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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In order to assess the vulnerability of the Irish economy to changes in exogenous variables, my Department regularly simulates the impact of a number of scenarios using the ESRI COSMO macroeconomic model. These results are published in the Risk and Sensitivity Analysis chapter of the Budget and Stability Programme Update documentation.

In Budget 2018, my Department simulated the impact of a 1 percentage point increase in the main ECB policy interest rate on the economy over 5 years (see Economic and Fiscal Outlook). The analysis suggests that such a shock would reduce the level of GDP by approximately 1 percent after 5 years relative to the baseline projection, with the level of employment after 5 years 0.7 percent lower as a result (also relative to baseline).

It should be noted that, on the basis of current information, market participants do not anticipate an increase in policy rates at any stage throughout 2018.  Indeed, at its recent policy meeting, the ECB Governing Council indicated no change to its forward guidance position.


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