Central Bank Governor Patrick Honohan has told the Oireachtas Committee on Economic Regulatory Affairs that he endorses the Government's decision for a multi-year budgetary plan.
He said this was of the utmost importance 'in order to restore domestic and international confidence, and restore access at reasonable cost to the international markets'.
Professor Honohan, said this country is now in a position where we now have to jump to what the international markets expect of us.
Referring to sharply-increasing bond rates, Mr Honohan said there had been a 'bail-in' of investors and he said this would have the effect of spreading the net of investors larger, to spread the risk.
Mr Honohan said there was no single rate that he would set out as an absolute, but he would only say the current rates are not sustainable.
Mr Honohan said there will be a point which would be good for borrowing, but that it will not be arrived at only by considering the bond yield but will be influenced by many other factors, including what he called the ‘sentiment’ towards Ireland by the markets.
Put under pressure to be more specific, Mr Honohan said he couldn’t set out a rate, to do so, he said would not be helpful in lowering the cost of our funding.
He said ‘sentiment’ had moved against Ireland, but he said this may improve.
Mr Honohan said it was obvious that we have to show lenders we can manage our debts.
He said they are saying they are not sure, hence, he said, the current price of lending.
On the bank guarantee he it was possible it may only be needed until June, but that it may be needed for another few quarters after that.
Mr Honohan said it was important that Ireland's story is properly understood overseas, because Ireland was not always heard the way we should be.
He said Ireland rises above the international news parapet, usually with bad news, but that our efforts to recover are sometimes not reported overseas.
When asked when bond yields would get back to normal, he said we'll never get back to the rates we had before because the crisis had exposed the scale of the risks that can be involved.
Mr Honohan said that although the size of the recapitalisation of the banks was very large, 'the favourable impact on investor confidence' had not been as strong as was hoped for.
Governor Honohan acknowledged that burden of the bank recapitalisation had contributed to the concern of the financial markets, but he restated that this burden had been over-stated.
He said foreign investors may be concerned with Ireland's residual loan book and of the more severe haircuts applied to tranches of loans going in to NAMA.
However, he said the Central Bank had used a 5% loan-loss stress case ratio, which was well outside historic experience in Ireland. He said despite recent trends, there was 'no hard indication the stress levels would be exceeded'.
IMF help not a panacea
Central Bank Governor Patrick Honohan has said IMF assistance to Ireland would not be a panacea and would not entail a change of direction from the fiscal consolidation being undertaken by the Government.
Mr Honohan said the International Monetary Fund was an ‘indispensable tool’ in stabilising country conditions when finances had ‘gone off the rails’.
When asked about the fund offering Ireland cheaper funding, he said: ‘The IMF is always there, you are not the first person to point that out’.
Mr Honohan was speaking at a conference in Dublin today called 'Financial Regulation: Risk and Reward'.
Mr Honohan said he did not believe outside financial assistance would be necessary for Ireland.
He added he did not believe the markets had fully digested the steps the Government was taking on the public finances and the banks.
But he acknowledged that historically the IMF had performed a useful function in countries which had got into difficulties.
The Central Bank believes despite Ireland's current higher cost of borrowing it will still be able to return to the markets next year.
Mr Honohan said the IMF would seek policies similar to those which the Government ‘is putting together on the fiscal side and things that I have been saying on the banking side’.
