'Era of negative interest rates are over' - Makhlouf

Speaking at an Oireachtas hearing, Central Bank governor, Gabriel Makhlouf said further interest rate hikes were necessary to control inflation

Governor of the Central Bank of Ireland Gabriel Makhlouf arriving at Leinster House ahead of speaking to the Joint Oireachtas Committee on Finance. Photograph: Leah Farrell / RollingNews.ie

Governor of the Central Bank Gabriel Makhlouf has defended the need to increase interest rates, telling the Joint Committee on Finance, Public Expenditure and Reform that raising rates was the primary way to fight inflation, which he said had "eroded living standards."

"Inflation remains far too high and interest rates will have to rise significantly at a steady pace to reach levels sufficiently restrictive. Bringing inflation back to target is essential for the wellbeing of our economy and community," Mr Makhlouf told the hearing. 

European Central Bank (ECB) policy rates have increased by 2% since July 2022, with Mr Makhlouf telling the Oireachtas that these will need to be increased further next week and again in March. 

The governor also asserted that the era of negative interest rates are over, and that the days of rates below zero "were behind us."

"We have been running a very accommodative monetary policy for a long time. Since December 2021, we have started to normalise policy, and negative interest rates are not normal."

Inflation was at 9.2% in December, with Mr Makhlouf forecasting that this will decline to 6.3% in 2023, falling further to 3.4% in 2024.

However, the governor also warned that this year will be characterised by "high uncertainty" acknowledging that inflation and subsequent interest rate hikes will increase repayment challenges.

"It is essential for us to control inflation. Putting up interest rates does have an impact on everyone's living standards, but it's important that everyone understands why we are doing it. "

At the hearing, the governor was warned that an increase in arrears will follow if the ECB hikes interest rates further next week. He was told that mortgages bought by vulture funds will see soaring interest rates if the ECB raises their policy rates again, with Sinn Fein TD, Pearse Doherty accusing the Central Bank of not taking responsibility for the issue.

"This is the Central Bank washing its hands. You are putting the onus on victims of the tracker scandal to switch lenders, that onus should be on the bank. These individuals would not be in this situation if you did not take money out of their accounts that was unlawful."

Mr Makhlouf replied saying the TD's comments were unfair, telling the Oireachtas hearing that the Central Bank has an active process of making sure all non-bank lenders were meeting their expectations.