Sunday 4 December 2016

Honohan is claiming cuts helped to restore faith in Irish bonds

FINANCE

Published 13/08/2011 | 05:00

CENTRAL Bank governor Patrick Honohan yesterday claimed the recent recovery in Irish bond prices partly reflected "reassurance in the market about the Irish programme of recovery" and wasn't due solely to the European Central Bank's bond-buying blitz.

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Mr Honohan's comments come two weeks after the ECB began snapping up Irish government bonds as part of its Securities Market Programme (SMP), designed to arrest the decline in weaker countries' bond prices.

When the programme began, investors were demanding an interest rate of 10.6pc to hold Ireland's 10-year bond but by last night that rate had fallen to 9.7pc. The so-called yield on the bond peaked at just over 14pc in mid-July.

"(The latest) rally came from the contribution of reassurance in the market about the Irish programme of recovery and actions from the ECB in the securities market programme," Mr Honohan said at an event in Tanzania yesterday.

He also said Ireland's debt level might be a "drag" on economic growth and push taxes higher, a fear many share ahead of a December Budget that's will take at least €3.6bn.

Criticised

At the Tanzania event, Mr Honohan criticised the "ridiculously easy availability of credit from abroad" and "light-touch" regulation as "key factors" in Ireland's boom to bust.

He also warned the African country of the dangers of globalisation and very open economies, something he says "turbo-charged" Ireland's rise by "amplifying the competitive, export-led growth period" and masking vulnerabilities.

"Just when things seem to be going very well in many directions, you can get into trouble very quickly and at a time when some of the conventional warning lights are not flashing," he said.

He stressed, however, that the single currency which helped open up Ireland's economy had also "picked up the pieces on the downside".

Ireland's banks have short-term borrowings of about €100bn from the ECB, plus almost €57bn of Frankfurt money channelled through the Central Bank of Ireland.

Irish Independent

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