asked the Minister for Finance the proposals, if any, he has to aid the process of decoupling Irish and British interest rates; and the steps, if any, he proposes to take to alter our system of exchange controls to help the decoupling process; the plans, if any, he has to publish a Green Paper or White Paper; and if he will make a statement on the matter.
Written Answers. - Interest Rates.
12.
Interest rates in Ireland are basically market determined. The market is influenced to a significant extent by developments abroad as well as by domestic developments. The scope for direct intervention in the markets by the authorities is limited. The most effective role open to the Government is the creation of favourable conditions for lower interest rates.
I have, therefore, in addition to reducing public expenditure and borrowing, taken a number of initiatives designed to help reduce the differential between Irish interest rates and bond yields and corresponding rates and yields abroad, including in the UK. These initiatives include a clear statement of the Government's commitment to maintaining the stability of the Irish pound within the EMS, the issue of an ECU denominated bond in the domestic market and meetings which both the Taoiseach and I have had with major financial institutions. I have urged market participants to look beyond developments in the UK when analysing interest rate prospects. These initiatives have had a significant degree of success in reducing shorter term rates and the retail rates of banks and building societies. Key Irish retail and short term interbank interest rates have for some time been below corresponding rates in the UK. Long bond yields have also come down but there is scope for them to fall further, particularly in the light of recent falls in bond yields abroad and the steps taken by the Government to achieve another significant reduction in borrowing next year.
The Government is currently reviewing exchange controls with a view to seeing what relaxations in the existing system may be possible. We do not wish to jeopardise the improvements which have taken place in domestic money markets and interest rates by relaxations which could lead to substantial capital outflows. Therefore, progress in relaxing the controls is likely to be on a phased basis. We would hope, however, to be able to introduce some limited relaxations in the near future.
I have no plans to publish a Green Paper or a White Paper on the matter.