Dáil Éireann debate -
Tuesday, 25 Feb 1997

Vol. 475 No. 4

Written Answers. - Exchange Rates.

Dermot Ahern

Question:

95 Mr. D. Ahern asked the Minister for Finance his views regarding the suggestion that, in relation to currency fluctuations the Government is deviating from stated policy in that other than allowing the Irish punt to maintain parity with the deutschmark it is being kept in line with sterling; if his attention has been drawn to difficulties being experienced by exporters in this regard; and if he will make a statement on the matter. [5165/97]

Minister for Finance (Mr. Quinn)

Exchange rate policy remains as it has consistently been stated over the years and I do not accept that the Government has deviated from it. Price stability within the ERM — that is reliably low inflation — remains the objective of exchange rate and monetary policy. This is central to the Government's policy of securing the maximum sustainable economic and employment growth, inter alia, by ensuring moderate wage developments. The importance of reliably low inflation in that context is very clear.

Within the price stability objective, our aim is that the Irish pound should trade comfortably within the ERM band. Participation in the ERM has helped to underpin the policy framework within which strong economic growth has remained consistent with low inflation over recent years. In this context I would point out that the Irish pound has not tracked either sterling or the deutschmark, although it has been influenced by both. For example, using current exchange rates, the Irish pound has fallen by almost 5 per cent against sterling since 30 September 1996, whereas during the same period the DM fell by over 12 per cent against sterling.

Exchange rates are of course heavily influenced by the markets' views of countries' current and prospective economic and fiscal performance, and naturally these views change frequently. Given relative movements in exchange rates, it is not possible to assure an unchanging rate for the Irish pound against other currencies. The recent developments in the foreign exchange markets, which have affected the value of sterling and the DM against the Irish pound, must be seen in that light. I should point out, however, that on a trade-weighted basis, the value of the Irish pound has not changed greatly, although it has appreciated somewhat; no doubt this is at least partly a reflection of the relative strength of our economy.

I am of course, aware of the concerns being expressed by some exporters in relation to the current exchange rate situation, although the strength of sterling should benefit exporters to the UK, and some exporters are also, presumably, benefiting from a fall in the Irish pound cost of inputs imported from the ERM countries whose currencies have weakened. It is primarily a matter for exporters themselves to cope with the economic environment in which they find themselves, including the currency environment. The Government does have a role in helping to ensure that the economic environment is as conducive as possible to economic activity, including exporting; the current climate in Ireland is characterised by high growth, low inflation, moderate wage developments, interest rates close to historically low levels, a balance of payments surplus, sound public finances, and a high level of investment under the Community Support Framework. The recent budget sought to improve this climate further, in particular by providing tax and social insurance reductions aimed at securing wage moderation and by improving our corporation tax structure.