‘Some change’ in interest rates expected, Central Bank chief says

Central Bank Governor Gabriel Makhlouf. Photo: Steve Humphreys

Sarah Collins

Ireland’s Central Bank chief said he would “expect to see some change” in interest rates if inflation keeps falling, but said he is “open minded” on when and how much.

Gabriel Makhlouf told the Oireachtas joint committee on finance on Wednesday that disinflation — where the inflation rate is falling, even if prices are still rising — is “well underway”.

The European Central Bank (ECB), which meets every six weeks or so to set interest rates, kept its main borrowing rate on hold at 4.5pc in January (4pc for deposits). Markets are pricing in a first rate cut in the late spring or early summer.

“Monetary policy is restrictive, and if we continue on this trajectory, then I would expect us to see some change,” Mr Makhlouf said. “But I think it does depend on what the data ultimately tells us.”

Eurozone inflation is expected to be 2.8pc in January, down from 2.9pc in December last year. The ECB’s target is 2pc, but it wants to make sure it can maintain that target, rather than merely hit it.

The latest ECB forecasts show inflation falling to 1.9pc only in 2025.

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Mr Makhlouf said the ECB is “waiting to be confident that we are on track” and that the inflation rate does not have to come down to 2pc before rates can be cut.

“With disinflation well underway, we are confident in sustainably reaching our target of 2pc,” Mr Makhlouf said “Although uncertainties remain, it is clear that our monetary policy decisions are working. Finally, and for the avoidance of doubt, I remain open-minded about the path of policy rates.”

Meanwhile, Mr Makhlouf said the Irish economy would continue to grow in the coming years “albeit at a slower pace”.

He said households have been “broadly resilient” but that there are “pockets of vulnerability”, with “challenges” remaining for a number of mortgage holders in long-term arrears.

However, he said mortgage switching is on the rise, and that people moving from non-bank lenders now stands at around the same level as the switching rate for mortgage holders at retail banks.

Deputy Central Bank governor Derville Rowland said “there is more opportunity for customers in the non-bank sector to switch to other products”.