Vol. 397 No. 1
7 Mr. Noonan (Limerick East) asked the Minister for Finance if his attention has been drawn to the fact that the differential between interest rates in Ireland and those in the Federal Republic of Germany is 3.8 per cent; the policy changes, if any, he intends making to enable the Central Bank to reduce this differential; and if he will make a statement on the matter.
Interest rate developments, including differentials between Irish interest rates and rates abroad, are kept under continuous review by my Department. However, interest rates are primarily a matter for the Central Bank. The Central Bank Act, 1942, sets out the bank's general function to safeguard the integrity of the currency.
The Government's role in relation to interest rates is mainly to create a favourable economic climate so that Irish interest rates can be kept as low as possible consistent with maintaining the value of the pound within the EMS. Notwithstanding recent interest rate increases, the differential between key Irish and UK interest rates has improved by over six percentage points since the end of March 1987, and the corresponding differential with German rates has improved by almost five percentage points. These improvements are a reflection of the good management of the economy.
The fundamentals in the economy are sound. The dramatic progress in restoring order to the public finances, the strong balance of payments current account, and the relatively low rate of inflation give the sound economic background which will allow Ireland to take advantage of improvements in the international interest rate environment whenever they occur. Therefore, the Government are determined to continue with the economic policies which have been so successful in developing a strong economy and in reducing borrowing and the burden of debt.
