Interest rates and inflation
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What is the ECB’s current stance on interest rates and inflation targets?
Gabrielle
McClough, Governor of the Central Bank of Ireland. Good morning, you're very welcome. Good morning, David. Thank you very much indeed for coming in. You're obviously, in your role, you're a member of the Governing Council of the European Central Bank, which sets our interest rates and which recently increased interest rates. And the logic of your position and the ECB board is, as I understand it, that unless inflation starts stabilising, interest rates are going to go up again.
Right.
Well, we haven't quite said that. I mean, what we've said is, I mean, just to go back, we have a target of inflation at 2% in
the
medium term. At the moment, we're projecting it to be over 3%. So I'm uncomfortable with that. But the uncertainty in the outlook because of events means that we take each meeting as it comes and make decisions meeting by meeting, looking at the data, looking at the evidence. So saying that we're going to put them up again is prejudging.
It depends. It
depends. But clearly, we put them up in June. We put them up in September. It's a pretty significant thing for us to do because we realize it has consequences for everybody. But our mandate is price stability, and that's what we're focused on.
Right, but the problem with inflation at the moment is it's largely driven by energy costs, which is largely driven by the situation in the Middle East.
Why can’t higher interest rates directly lower energy prices?
And I'm not quite clear how increasing interest rates is going to make energy costs go down.
Well, it's not going to make energy costs go down. I mean, what will fix that is an end to the war. That's absolutely right. Sadly, out of your control. Sadly, out of our control. Central bankers haven't got to those sorts of powers yet. But what we can do is control inflation and we need to – and at the moment, to be fair, although inflation is above our target, we're not seeing the sorts of second round effects that start feeding through to prices and creating these loops. And we're just focused on trying to make sure that we contain the pressures that absolutely exist
out there for prices to go up. You say we're not seeing that secondary round of inflation. Is there an unspoken yet in that phrase? Because presumably if energy prices stay high, it feeds into all sorts of parts of the economy. That's the
risk. And if that happens, you know, we will have to take action again to meet our
target. OK. Now, just like you, there's nothing the government can do about the straight here, can do about the straight of Hormuz. But there are levers available to us. You've been warning against excessive spending, as you'd put it. Less than a fortnight to go to the budget. Do you think that message is getting through?
How is the Irish government advised to prioritize infrastructure spending?
I think the government understands that message. And certainly just looking at reading the Tanisha speech from yesterday, I think it sounded to me as if that message has got through. But look, the government has got pressures itself to meet and it has to make choices. I mean, our focus and the message we're giving to the government is stick to the plans that you've already published. And within those plans, prioritize infrastructure. And it's, you know, when I use the word infrastructure, people think housing, but I'm actually talking housing, water, the electricity grid. They're creating bottlenecks within the country, within the economy that are actually pushing up prices. So that's where the focus
should be. At a time when the economy is going full tilt, it is difficult to get value for money for infrastructure projects, for instance.
Well, those are always a big challenge and they require people to be really focused on what it is that you're trying to get from the investment and making sure you actually proceed to that investment at pace. I think one of our issues is. in the country, which the sort of accelerating infrastructure task force that published its report at the end of last year. One of our issues is that things take too long. And that really challenges the value for money. And we need to find ways where
we speed that up. To go back to the cost of living, particularly energy prices, it's causing real hardship for real people and it seems perverse to many in politics as opposed to in economics.
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Chapters
8 chapters
1
What is the ECB’s current stance on interest rates and inflation targets?
0:00–1:31
2
Why can’t higher interest rates directly lower energy prices?
1:31–3:05
3
How is the Irish government advised to prioritize infrastructure spending?
3:05–4:56
4
What are the “three T’s” of targeted, timely, and tailored support for households?
4:56–6:42
5
Why should fiscal support be focused on renewable energy and solar panels?
6:42–8:36
6
How might excess corporation tax be used to create a sovereign wealth fund?
8:36–10:00
7
What are the legal and ethical considerations around approving Israeli bonds?
10:00–11:54
8
What goals does Governor Makhlouf have for his second term at the Central Bank?
11:54–14:21