Vol. 403 No. 8
16 Mr. Noonan (Limerick East) asked the Minister for Finance the discussions, if any, he or his Department have had recently with the officers of the Central Bank on exchange rate policy; if he will outline the Government exchange rate policy; the reason after closely tracking the Deutschemark for over six months the Central Bank have now departed from this policy; and if he will make a statement on the matter.
Exchange rate policy is a matter for determination by Government and there is ongoing contact with the Central Bank on the implementation of this policy. The consistent approach for the past few years has been to maintain a strong position within the exchange rate mechanism of the European monetary system and this has been very successful in terms of confidence in the currency. There has been no change in this policy. It is a matter for the Central Bank to operate exchange rate policy on a day to day basis by using the available instruments, namely exchange rate movements within the EMS band, changes in interest rates and interventions in the foreign exchange market.
(Limerick East): Is the Minister aware that the Central Bank, having stayed within 1 per cent of the German Mark — and being, for most of a six month period, on a par with the German Mark — varied that policy about two weeks ago and are now allowing a wider degree of divergence? Will he comment on this change in policy? Was it authorised by the Government? Does it indicate a softer exchange rate policy?
I assure the Deputy that it does not indicate a change of policy. It was not organised by the Government and it is not the first time it has happened. Some commentators are reading far too much into this. There is no question of a change of policy and I want to emphasise that.
(Limerick East): The stated policy of the Government is to remain within the EMS band with a divergence of 2.25 per cent. For the last six months or so the bank have operated a policy which kept the punt within 1 per cent of the mark. That variation was changed about two weeks ago and I should like to know whether the change was after consultation with the Government. Does he consider this part of the day-to-day operation of the policy by the bank?
I consider it as part of the day-to-day operation of the Central Bank. It is not a change of policy, it was not done at the instigation of the Government and it was not connected with any discussions between the Central Bank and the Government. I would point out to the Deputy that what happened over a few months was that the convergence became a lot closer as a result of some weakness in the Deutschemark because of the uncertainties as to what the cost of reunification would be. In recent times, with the increase in German interest rates, the marketplace was strengthened and consequently the variation moved somewhat. Since 1987 the differential between Irish and German rates has been reduced from the then level of 9 per cent to what it was last Friday 11½ per cent. That is a clear indication of where the Irish exchange rate policy is going. We aim to continue that. That is what it is all about.
