Dáil Éireann Debate, Wednesday - 21 June 2023
74. Deputy Aindrias Moynihan asked the Minister for Finance if he will outline his approach to the phasing out of accommodative monetary policy and the ECB's increases in interest rates; and if he will make a statement on the matter. [30151/23]
View answerAs Minister for Finance, monetary policy is not part of my remit and it is not my place to comment or speculate on the setting of Eurozone interest rates, which is the responsibility of the ECB. However, I note the rapid tightening of monetary policy that has occurred over the past year. Whilst this has been a necessary step to prevent inflationary expectations from becoming de-anchored, the increase in interest rates will have knock on implications for the financing burden faced by both businesses and households.
While inflation remains far in excess of the ECB’s 2 per cent target, inflation has now passed its peak and is clearly on a toward trajectory. In May, headline inflation in Ireland stood at 5.4 per cent, representing a 4 percentage point reduction from last summer’s peak of 9½ per cent. However, ‘core’ inflation (excluding energy and unprocessed food) remains stubbornly high. With conditions in the labour market exceptionally tight, there is a real possibility of a wage-price spiral which would lead to second-round inflationary effects. Other capacity constraints in the economy such as those in the housing market could further elongate this period of heightened core inflation.
Government has provided timely support to households and businesses as they have tackled the increased cost of living over the past year. Many of the fiscal supports enacted have been temporary and targeted in order to help those most in need without exacerbating price pressures or impeding the ECB’s efforts of returning inflation to target.
My Department continues to monitor the ECB’s monetary policy decisions along with the latest inflation data on a continuous basis and will ensure that Government is best placed to respond to respond to future developments as they arise.
