The Governor of the Central Bank, Gabriel Makhlouf, has said that a drop of 12% in GDP is “the most realistic” forecast and is one that should be used when planning “how to get out of this.”
Speaking from Greece where he has been caring for his elderly mother during the Covid-19 crisis, Mr Makhlouf told RTÉ radio’s Today with Séan O’Rourke show that a big proportion of planning “is the unknowable.”
"The role of the Central Bank is to ensure the financial system is working and to maintain stability. The first action is to ensure liquidity and that banks keep lending", he said.
Supports have to be timely, but they will have to be temporary and their duration depends on how long the virus is a factor.
Mr Makhlouf said that there needs to be plans in place about how and when State supports will be withdrawn.
The banks are an important part of the system to keep money in circulation so that “people can work and play and that the country can function.”
It was important to remember that it was in everyone’s interests for the banks to make prudent decisions, unlike the "reckless decisions of the past" he said.
Banks were looking carefully at creditworthiness and making decisions accordingly, he said in response to a question about people not being able to complete house purchases.
Borrowers and lenders needed to maintain open communications “to make sure everyone in the system understands the situation they’re in.”
Mr Makhlouf said it was important that the European Union have a recovery plan to support the emergence of all countries out of the crisis.
How that recovery is funded – whether it is through Corona bonds or other measures – requires action that needs to be “ambitious and coordinated.”
However, Mr Makhlouf said he was “a bit disappointed” by some of the reactions he had seen to date from other European countries.
When asked about the predicted fall in GDP, he said it was clear that there had been a big a shock. Any decision on how the government finances spending will be a political choice.
It could be through raising taxes, borrowing or adjusting spending. There will have to be trade-offs, he said as “the numbers are extraordinary” of people on State aid. This had been replicated across the industrial world.
While the “key question” was “how to get out of this” other issues had not gone away such as the UK’s departure from the European Union which remained “a big challenge for Ireland.
Building economic resilience remains a really important challenge and opportunity.
When asked about low-interest rates on deposits, Mr Makhlouf said that interest rates were low throughout the EU and in some cases were negative, banks needed to make sure they were acting fairly and to have their customers’ interests at the front of their mind.