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‘The days of cheap funding are going’: Donohoe concerned over rising cost of borrowing

admin | June 11, 2022

The Minister for Finance has raised concerns over the rising cost of borrowing in advance of the budget and amid ongoing pressure on the Government to intervene again on the cost of living. Paschal Donohoe on Friday dialled down public expectations of a cost-of-living giveaway budget, warning that any Government measures must not become “part of the problem”. He told an Economic and Social Research Institute conference organised in advance of the budget: “Let me emphasise that the days of cheap funding are going.” Weighing up competing demands as part of the next budget will be “complex and challenging” and, faced with increasing interest rates, Mr Donohoe has said he will be focusing on “the lowest level of borrowing”. The State has enjoyed years of cheap borrowing as central banks kept rates low. However, with the European Central Bank approving a 0.25 per cent increase in interest rates, and flagging more for later in the year, senior Government sources told The Irish Times that bond yields on 10-year Irish Government debt went above 2 per cent on Friday, compared with almost zero at the start of the year. And while he said the Government would “continue to play its role in the time ahead” in assisting households meeting cost of living challenges, he warned that the Government’s balance sheet “cannot be used to absorb all of that change that is under way”. Ireland Opposition calls for emergency budget as inflation… Read More He said there were clear signals that an “economic regime change” is under way in the global economy, driven by post-pandemic disruption, changing monetary policy and the fallout from the war in Ukraine. He said the Department of Finance’s “best assessment” is that risks flagged earlier this year are “indeed developing”, with changes to the structure of globalisation under way. It comes amid ongoing tensions within the Coalition over whether the Government should proceed with another package of economic supports. While not explicitly ruling out more interventions this side of the budget, Mr Donohoe said there were “limits” to what the Government could do. “My focus and the focus of Minister [for Public Expenditure Michael] McGrath is now on preparing the budget and at budget time putting in place the measures that we know will be needed to help many with the rising cost of living.”

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