Ireland's borrowing costs will ultimately reflect Brexit's economic impact, even if it is now being masked by the European Central Bank's unprecedented support for euro zone financial markets, the National Treasury Management Agency has warned.
Investors in European bonds have been increasingly optimistic since the UK vote that the ECB, which is in the middle of a bond-buying quantitative easing programme, and other central banks will do whatever it takes to shore up market confidence.
As a result, the market interest rate, or yield, on Ireland’s benchmark 10-year bonds has halved, to a record low of 0.4 per cent this week to the surprise of NTMA chief executive Conor O’Kelly.
Liquidity
Bond investors “believe in one thing and that’s central banks’ ability to pump liquidity into the system”, Mr O’Kelly said at the release of the agency’s annual report.
“I wouldn’t be in any way complacent about that. That’s a short-term force in the market place. Ultimately, there will be credit implications and there will be economic implications for Ireland.”
The NTMA had no immediate funding pressures, he said, having raised €6 billion of debt so far this year out of a full-year target between €6 billion and €10 billion. However, with Ireland’s debt level at over €200 billion, the Brexit referendum was a reminder that the country wasn’t immune to domestic or external shocks.
Diluted
Mr O’Kelly said news that growth for 2015 was revised up to 26 per cent, driven by one-off factors such as restructuring by multinationals, “diluted” the ability of debt ratios to explain economic improvement.
The Department of Finance said on Monday revised data had resulted in Ireland’s debt-to-GDP ratio falling to 79 per cent, compared to a previous estimate of 94 per cent. The ratio peaked at 123 per cent in 2013.
He said the NTMA has been talking to investors and credit ratings agencies in the past few days, explaining the factors behind the GDP jump. “But when you’re explaining, you’re losing.”
However, Mr O’Kelly said he did not see ratings agencies “looking hard” at their stance on Ireland until early next year.
