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Finance | European Central Bank borrowing and monetary policy

To ask the Minister for Finance the degree to which borrowing for capital or non-capital works here continues in line with the policy of the European Central Bank; and if he will make a statement on the matter.

I understand the Deputy is interested in Ireland’s borrowing and the monetary policy of the European Central Bank (ECB).

The National Treasury Management Agency (NTMA) borrows to meet the Exchequer’s Borrowing Requirement regardless of whether the ultimate expenditure is capital or non-capital in nature. It should be noted that current and capital expenditure in Ireland is funded through a combination of borrowing and taxation receipts. The NTMA has informed me that so far this year, it has issued €7bn of Government bonds. It issued a new 10-year benchmark bond via a syndicated transaction in January and held three dual bond auctions, the most recent of which was on 1 September.

At €7bn year-to-date, issuance is well below the levels seen in recent years as the impact of the covid-19 pandemic on the public finances unwinds and the Exchequer returns to a position of surplus on foot of strong tax revenues. The issuance was completed at a weighted average yield of just under 1.1% and a weighted average maturity of close to 15 years.

In terms of the factual position, the ECB has no role in determining the use of Exchequer expenditure (whether sourced from borrowing or taxation receipts). The Deputy will be aware that at the most recent meeting of the Governing Council, on 8 September 2022, the ECB decided to raise the three key ECB interest rates by 75 basis points.

The ECB has publicly indicated that, based on its current assessment, over the next several meetings the Governing Council expects to raise interest rates further to dampen demand and guard against the risk of a persistent upward shift in inflation expectations.

At the 8 September meeting the ECB also publicly announced that it intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the Asset Purchase Programme (APP) for an extended period of time past the date when it started raising the key ECB interest rates and, in any case, for as long as necessary to maintain ample liquidity conditions and an appropriate monetary policy stance. As concerns the Pandemic Emergency Purchase Programme (PEPP), the Governing Council intends to reinvest the principal payments from maturing securities purchased under the programme until at least the end of 2024. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance. Redemptions coming due in the PEPP portfolio are being reinvested flexibly, with a view to countering risks to the monetary policy transmission mechanism related to the pandemic.

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