Sir, – David McWilliams castigates the Central Bank of Ireland, which “is supposed to run monetary policy in the economy” for failing to encourage bank lending (“The Irish banking system is not working – and that rarely ends well”, Opinion, February 14th). Is this a fair criticism?
Twenty-seven years ago, on January 1st, 1999, Ireland joined the European Monetary Union (EMU), and the Central Bank of Ireland became a member of the Eurosystem, with the European Central Bank (ECB) at its apex.
From then on, national central banks lost their power to pursue an independent monetary policy suited to their domestic economies. Policy was decided by the ECB Governing Council and official interest rates were set at levels to ensure price stability in the euro area as a whole.
Even if the Central Bank could act independently, however, would it want to encourage more bank lending in present circumstances? Is the local private sector starved of credit or is it a lack of profitable investment opportunities for which to borrow?
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With strong capital inflows, irresponsibly high public sector expenditure and bottlenecks in key sectors, such as infrastructure, which are limiting the growth potential of the economy, the encouragement of increased bank lending by the Central Bank might only be inflationary. More targeted policies are needed to help the Irish domestic economy. – Yours, etc,
JOHN KELLY,
Former vice-chairperson,
Euro Changeover Board of Ireland,
Rathfarnham,
Dublin 14.
