Can Noonan or Honohan actually do anything on variable rates? (no)

The calls to lower rates by opposition politicians such as Michael McGrath on Primetime this week is making daily headlines. Charlie Weston doing a cracking job as always bringing personal finance to the front of the paper has ensured it lead for the last two days.

This has gone from the line that ‘it’s not our place to set prices to the news broken by Martina Fitzgerald that ‘Noonan and Honohan are going to pow-wow about it’.

Don’t expect much. The official responses from both the Department of Finance and the Central Bank are below. Note in particular that Honohan makes the case for non-intervention very clear.

The email sent to both was the same:

Question: Is there any explicit power the Central Bank/Department of Finance has to compel banks to change or lower their standard variable rates? If there is can you indicate which part of any Act that the power to do so comes from?


Responses were: (things in bold my own emphasis)

Department of Finance response:

——– Forwarded Message ——–
Subject:     RE: Query on variable rates
Date:     Thu, 2 Apr 2015 10:15:11 +0000
From:     <>
To:     Karl Deeter


The mortgage interest rates that independent financial institutions operating in Ireland charge to customers are determined as a result of a commercial decision by the institutions concerned and the Minister for Finance has no statutory role in relation to the mortgage interest rates charged.

Best regards,
Central Bank response:
——– Forwarded Message ——–
Subject:     RE: Variable rate query
Date:     Thu, 2 Apr 2015 10:22:37 +0000
From:     <>
To:     Karl Deeter

Hi Karl,

In relation to your query, the Central Bank does not have the legislative power to intervene in respect of interest rates.

For information, Governor Honohan made some comments at the Oireachtas Committee on 26 November in relation to interest rates, as follows:

‘As in all advanced economies, in Ireland it has long been understood that tight administra­tive control over the rates charged by banks would be counter-productive in ensuring a suffi­cient flow of property price credit on a lasting basis. For one thing, such control would strongly discourage new entrants. Therefore, while interest rate spreads are now high I need not remind the committee that since national credit policy is crafted with the welfare of the people as a whole as the constant and predominant aim, I see no sufficient basis for altering this view. Of course, the Central Bank does not have the power to set those rates, but that is a policy view.’

In a presentation to the University College Dublin, Economics Society on 6 October he also said:

‘So, should there be a ceiling on interest spreads? Control of retail interest rates by the Central Bank is not provided for in legislation, and I believe it should remain so. This will not come as a surprise to students of economics, accustomed to understanding the problems that can be caused by preventing the emergence of a market-clearing price. But I think that there is an important political economy dimension here. If the local banks are charging unnecessarily high interest rates, that will be an inducement for new entry into lending here, and that (reversing the trend of the past few years) would be very welcome and would have the effect of bringing both pricing and the quality of banking services to a much better place. In contrast, aggressive official interest rate spread control would be the clearest warning signal to would-be entrants that they might not be permitted to earn sufficient profits to justify the costs of entering.’

These comments reflect the view of the Central Bank.



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