FROM THE ARCHIVES:The currency crisis of 1992-93 saw mortgage rates rise to 16 per cent – and deposit rates rise even higher – as Ireland tried to avoid devaluation after Britain was forced out of the European Monetary System. The new Fianna Fáil-Labour government eventually gave in to the pressure at the end of January 1993. Jackie Gallagher pieced together the run-up to the weekend devaluation which saw the Irish pound drop by 10 per cent. –
BERTIE AHERN and his officials breathed a sigh of relief at 9pm on Friday. The financial markets in New York had just closed without being alerted to the following day’s meeting of the European Community Monetary Committee which the Minister for Finance had secretly requested.
On Wednesday, Thursday and Friday of last week, the issue of utmost importance for the government was confidentiality. With other devaluations, word had got out in advance and speculators were able to cash in at the last minute. This time there were going to be no leaks.
Precautionary measures were taken by the “currency war cabinet” which met throughout the crisis in the Minister for Finance’s office The precautions included not keeping minutes of last week’s two war cabinet meetings or giving memoranda to the Government, and limiting information on the request for a Monetary Committee meeting to only a handful of officials and Government Ministers.
The war cabinet also ensured that the officials who were travelling to Brussels were taking a scheduled service on Saturday morning so that no suspicion was aroused by organising an official Air Corps plane.
Up to 10 days ago, devaluation was still not being considered seriously. The idea had been discussed in late September by the previous government, which opted instead for a maintain-the-exchange-rate policy combined with an EC diplomatic offensive.
Last Friday week, devaluation became an option that had to be seriously considered. The government was in negotiations with the banks and building societies for aid to business and mortgage borrowers that involved the borrowing of more than £1 billion, with the State underwriting the exchange rate risk. If this went ahead and there was then a 10 per cent devaluation, the State would have had to carry an immediate cost of over £100 million.
As Mr Ahern returned to Dublin last Tuesday, the British government announced that it was cutting interest rates to 6 per cent, their lowest level in 14 years. This was bad news for the pound as sterling weakened, pushing the pound to 109.9p sterling.
When he reached his office, Mr Ahern was briefed by the officials from the Department of Finance’s currency team. The Central Bank was raising overnight interest rates to 100 per cent because of a wave of speculative attacks on the currency, the Minister was told.
On Wednesday morning, the Government met to discuss the crisis and the progress made on further aid packages to assist business and mortgage holders. Mr Ahern prepared the political ground for devaluation, indicating to those at the Cabinet table that the Central Bank view was that the British economic recovery strategy centred on cutting interest rates.
This, he said, probably meant that their rates would be cut by one point a month over the next three months, falling eventually to 3 or 4 per cent. This would mean that pressure would continue on the pound, Mr. Ahern stressed, adding that he would keep his colleagues briefed.
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