"Time for ECB to act" - Governor Makhlouf addresses IBEC National Council

12 May 2022 Press Release

Governor Gabriel Makhlouf

  • Inflation levels are concerning - ECB Governing Council needs to act
  • The strength of Ireland’s economic recovery has driven increased labour market participation for younger workers, while for women, increased participation is part of a longer-term trend
  • Taking action to deal with long term challenges reduces ultimate cost

Speaking at IBEC’s National Council meeting this morning (Thursday, 12 May), Governor of the Central Bank of Ireland Gabriel Makhlouf said: “Ireland’s economic outlook is good, but for the avoidance of doubt, the current level of inflation is concerning. I am acutely aware of the impacts of inflation on people’s lives and businesses - it affects the whole community, and some more than others. We know that those who are disproportionately affected are lower income households, older people, and rural households. We have reached the point where we on ECB’s Governing Council need to act. Our objective is for inflation to be at 2 per cent over the medium term - levels are significantly above that now, and it is time for the Council to move to end net asset purchases under the asset purchase programme next month or in July.”  

Commenting on interest rates, the Governor highlighted that “the era of negative rates is reaching its conclusion, and we are continuing on a path towards the normalisation of monetary policy.” He said it is realistic to expect that the ECB’s interest rates are likely to be in positive territory by early next year.

In relation to Ireland’s economy, the adjustment of the labour market has been striking, with numbers employed now exceeding 2019 levels. Governor Makhlouf explained that “for younger workers, the strength of the economic recovery has driven increased participation, while for women, increased participation is part of a longer-term trend”. Speaking about his expectation that the labour market will further tighten, he said “this should result in stronger and broader-based wage growth than we have observed in recent years”. However he warned that the potential of wages becoming detached from underlying productivity growth presented clear risks to the competitiveness of the Irish economy.