Rise in interest rates could now be ‘beneficial’, says Fiscal Council chief
The European Central Bank’s tapering of its quantitative easing programme will not have a huge impact on the Irish economy, Fiscal Advisory Council chief Seamus Coffey has said.
Despite the concerns of the Department of Finance and the Economic and Social Research Institute (ESRI), Mr Coffey said a rise in interest rates could actually be “beneficial” in relation to house prices.
The ECB announced in October it was going to cut its massive bond-buying programme to €30bn a month from €60bn, as of January.
But it extended the scheme’s lifespan by a further nine months, signalling to investors that despite strong growth, work must continue as inflation remains low.
Last summer, the Government warned that an end to QE could push up Ireland’s borrowing costs given the scale of our public debt.
“On Irish growth I don’t think it will have a huge impact. We’re still not seeing interest rates and predictions of interest rates rise yet,” Mr Coffey said, in an interview with the Irish Independent.
“The ECB is likely to taper its purchases of assets but interest rates are likely to remain low. I don’t see the ECB’s tapering off having a significant impact on Ireland.
“In fact, you could argue that as the economy has grown so strongly, perhaps in relation to house prices and other asset prices, that a rise in interest rates would actually be beneficial, given our place in the economic cycle.”
Mr Coffey said any increase in interest rates that might come about from an ending to QE could dampen mortgage lending, signalling it could act as a drag on current house price growth.
“Previously, back in 2005/6/7 we had interest rates that we knew were too low for us,” he says. “There’s probably a risk at present that interest rates in the future could be too low. So maybe seeing interest rates rise now wouldn’t be the negative that some might perceive it to be.”
Meanwhile, the euro’s recent strength against the US dollar was “not helpful”, European Central Bank policymaker Ewald Nowotny said yesterday, when asked about the currency’s recent gains. Mr Nowotny added that the ECB had no exchange rate target so it would monitor the developments.
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