Historically low interest rates will not last forever – Makhlouf

The historically low interest rates at which the State is borrowing will not last forever, and the Government must consider how the national debt can be returned to a more sustainable footing, Central Bank governor Gabriel Makhlouf has said.

The State has borrowed enormous sums to combat the Covid-19 pandemic, with the national debt set to rise from just over €200 billion before the pandemic to €239 billion by this end of this year.

“At some point interest rates will change,” Mr Makhlouf told the Pat Kenny Show on Newstalk on Friday.

“They are remarkably low by historical comparisons. At the moment, with inflation at the level it is, we don’t see anything changing very quickly. But it would be wrong to assume interest rates will stay at these very low rates forever.

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“It is certainly the case that they are at a level that enable the economy, businesses, households, and the Government to benefit from financing conditions that are very favourable.”

Mr Makhlouf continued that the Government must begin to plan for how it will return the State to a sustainable financial footing.

“The existing supports that governments and central banks are providing the economy need to continue,” he said.

“We will also need to be thinking about how over the medium term debt is returned to a more sustainable position. But that should not be the focus [now]. We shouldn’t be looking to achieve that very quickly. Once we see ourselves through this current crisis, we will have to get there.

“At the same time, Government is going to have to think about how it will afford to pay the interest on the debt that’s likely to continue.”

The governor added that the economic landscape is likely to remain turbulent until the second half of this year.

“It is still very uncertain, but the fact that vaccines are here and are coming, we see the picture in the near term actually not being very good, but in the second half of the year picking up as the vaccine roll-out happens and restrictions are lifted,” he said.

“But it is very, very contingent on the vaccine roll-out and the path of the virus.”