LAST UPDATE | 7 Jun 2023

THE CENTRAL BANK of Ireland today released the first Financial Stability Review (FSR) of 2023 which says uncertainty caused by the pandemic, Russia’s war against Ukraine and inflation still weighs heavily on the global economy.

Despite this, the Irish economy, it says, is resilient and an expected rise in wages will help reduce the impact of inflation and suspected price gouging. 

The FSR outlines key risks facing the financial system and the Central Bank’s assessment of the resilience of the economy and financial system to adverse shocks.

Irish banks, it said, have the capacity to absorb potential future shocks, but “the risks continue to be material”.

Mortgages 

Governor Gabriel Makhlouf took issue with the term “disparity” being used to refer to the difference in mortgage rates between customers.

Instead, they reflect different funding models and different choices made by lenders.

According to Makhlouf, the goal is not for everyone to have the same mortgage rate, as the diversity is part of a competitive market. 

He added that there is “concern” about the “very high rates” some people have been paying.

“What matters is that people are being treated fairly.”

Makhlouf’s advice to borrowers is to contact their lender immediately when they have doubts about their future ability to repay their mortgage.

“My message is you don’t need to wait for arrears to happen for the [Code of Conduct on Mortgage Arrears] to kick in,” he said.

He also highlighted the lenders’ obligation and said that the Central Bank encourages them to offer the full suite of options to borrowers, although they often don’t.

The Central Bank’s job, he said, is making lenders fulfil their duty to borrowers.

It is not currently looking to reform the CCMA, which he says is “working”.

Makhlouf says he expects the European Central Bank (ECB) to make two more interest rate hikes in the coming months.

Households have on the whole reduced their indebtedness substantially over last decade and have higher accumulative savings.

But moving forward, an increase in creditors and arrears is expected.

Price gouging?

Makhlouf assured that the Central Bank is conscious of the issues affecting workers and families.

Mark Cassidy, Director of Financial Stability, said that the cost of living crisis is “essentially strong demand has allowed firms to pass on higher prices”.

Employment is at its lowest level in 20 years, which Governor Makhlouf says “is helping massively” with demand.

The Central Bank says the cost of living crisis will subdue as real income follows suit. This year, a 6.5% increase in wages overall is forecast. This figure will be 5.5% next year, it estimates.

The high prices for customers and profits for firms is indicative of “an extended recovery period” after the pandemic, which has created a “favourable position for firms”.

“People made a lot of savings during lockdown. These are now available to be spent over the coming years,” Cassidy said.

Neither the governor or deputy governors accused companies of price gouging or profiteering.