Business Irish

Sunday 22 April 2018

NTMA's €600m comes cheaper than before downgrade

Thomas Molloy

THE National Treasury Management Agency yesterday borrowed €600m at a lower cost than two weeks ago in the first test of investor appetite since Standard & Poor's downgraded the country's debt rating this week, a move that sparked fears of another significant spike in the cost of borrowing.

Yesterday's auction came as Canadian Finance Minister Jim Flaherty dismissed Standard & Poor's analysis.

Ulster Bank economist Simon Barry, meanwhile, said he now expected the economy to grow a little quicker than he previously forecast.

Yesterday's action of so-called T-bills, a method to allow the State to borrow money for short periods of time, was closely watched after the last T-bill auction, two weeks ago, shot up.

This time round, the NTMA borrowed just €600m or half the usual amount.

"The fact that it's 50pc of the size of the August 12 auction certainly helps, but in light of the S&P downgrade, I think it's a very good result," said Fergal O'Leary at Dublin-based Glas Securities.

Meanwhile, 10-year Irish yield spreads -- another indicator for risk appetite -- hit record highs earlier this week but were unchanged at 3.44pc after yesterday's auction.

While yesterday's news was good, most analysts said the real investor test would be the next full-blown government bond auction, scheduled September 21.

The good news still leaves Ireland paying more to borrow money than any eurozone country bar Greece. Yesterday's auction produced "still expensive rates . . . on such short-term funds", said NCB Stockbrokers economist Brian Devine.

Earlier, Mr Flaherty said Ireland had a solid bank plan and was Europe's leader in fiscal reform, advising against taking rating agency views such as S&P's too seriously.

Ulster Bank economist Simon Barry said he expected gross domestic product to grow 1pc this year up from his previous forecast of 0.5pc.

Gross national product will contract 0.4pc -- less than a previous forecast of 1.2pc -- assuming the world economy does not slump much further.

While raising his forecasts, the economist warned the downside risks to the Irish growth outlook had risen somewhat and predicted unemployment could hit 14pc.

Mr Barry warned the Government's credibility "could easily be lost if performance were to slip behind plan".

He urged Finance Minister Brian Lenihan to provide more detail about his plans for savings in the years ahead.

He added that Mr Lenihan should provide details of what he would do if the economy failed to grow as quickly as the Department of Finance hoped.

Irish Independent

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