Irish companies should be considering buying forward all possible other currencies which will be members of the euro, AIB's chief economist Mr John Beggs said yesterday.
According to Mr Beggs there is now little prospect of a revaluation of the pound and the Irish currency will now be falling against the deutschmark - and the other ERM currencies -until it reaches its central rate at DM2.41.
"Companies must be aware of the enormous difference between the current spot rate and the forward rate and what is likely to be seen in several months time," he said.
They should be thinking about taking out some protection, whether it is simply buying forward or hedging using an options strategy.
This applies not just to the mark but to all the other currencies like the French franc and the Dutch guilder, he said.
The only way this would not pay off for a company would be if a 10 per cent revaluation of the pound was ordered. According to Mr Beggs that is very unlikely. At the moment sterling is falling, taking the pressure off the pound and the talk of revaluation. But he believes that even if sterling were to appreciate once again towards DM3. the authorities here would still be very reluctant to order a revaluation. "They will not want to bet that sterling would stay that overvalued for long," he added.
Yesterday, the markets sold pounds acting on the belief that a revaluation is now a much more distant prospect.
The pound fell over two pfennigs to DM2.6343 from DM2.6557 on Thursday and also slipped a little against sterling closing at 92.30p form 92.74p a day earlier.
The other possible fly in the ointment would be a significant increase in consumer price figures, signalling a pick-up in inflation. However, Mr Beggs said this was unlikely.
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