Tuesday 10 December 2019

Borrowing costs remain 'unfavourable' -- Honohan

Governor of the Central Bank Patrick Honohan at a press
conference yesterday for the bank's annual report for 2011. Photo: Damien Eagers
Governor of the Central Bank Patrick Honohan at a press conference yesterday for the bank's annual report for 2011. Photo: Damien Eagers

Laura Noonan

Comments come amid increasing expectations that Ireland will need a second bailout next year

IRELAND'S borrowing costs are "unfavourable" and "disappointing", but it's a "huge leap" to conclude the country will succumb to a second bailout, Central Bank governor Patrick Honohan insisted yesterday.

Speaking to journalists, Mr Honohan also admitted that while Ireland's banks have "no immediate need" for more cash the ultimate capital needs of banks here and across Europe are "a matter of quite large uncertainty".

The comments at the publication of the Central Bank's annual report come amid increasing expectations that Ireland won't be able to execute 2013's planned return to financial markets and will need a second bailout.

Interest rate

The interest rate demanded by investors to hold Irish nine-year bonds remains stubbornly above 7pc -- about twice the rate currently charged on our EU/IMF bailout loans -- as markets baulk at the deepening eurozone crisis and recession.

Mr Honohan admitted the borrowing costs were "unfavourable" and "disappointing" but said it would be a "huge leap" to interpret his comments as a second bailout being likely.

"Plan A (getting back to the markets) is still a good one," he said, stressing that sovereign borrowing costs could "move around very sharply in response to policy" and that he hopes to see improvements "in time".

Ireland's borrowing costs improved dramatically when the ECB launched two operations to offer banks unlimited three-year money, cash that was ultimately recycled into government bonds.

However, the effect was short-lived and wasn't followed up with any further initiatives. Mr Honohan insisted the ECB "hasn't" used all the tools it has to fight the crisis, but refused to be drawn on what other measures it could take.

Mr Honohan also stressed that Ireland "hadn't gotten nothing" from the 18-month-old bailout, since the changes to our budget "had to be made sooner or later".

"It's not that the fiscal adjustment (budget changes) didn't work, it's that market conditions overall have been very bad," he said.

Deutsche Bank last week warned that the mortgage crisis could force the state-supported banks to need further billions, a development Deutsche said could tip Ireland into a second bailout.

But Mr Honohan said Ireland's banks had been given capital to deal with an "awful lot of losses" and there was "no immediate need for capital in the Irish banking system".

"I have to emphasise that this is an area of quite large uncertainty," he said. "Countries that don't have losses as big as ours have also found it difficult to get the right measure (of those losses)."

Mr Honohan and Financial Regulator Matthew Elderfield defended Ireland's decision to defer the next round of stress tests until 2013, saying that banks needed time to deal with their mortgage books in order to make the next tests meaningful.

Asked if Ireland could still get a second bailout if the fiscal compact treaty failed, Mr Honohan said that was an "interesting question" but not one he would answer since "there's an election going on".

He also repeatedly refused to answer questions about Greece's possible exit from the eurozone and any potential impacts on Ireland or contingency plans to protect Ireland.

Irish Independent

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