NCPA - National Center for Policy Analysis

Lower Interest Rates Could Ignite Inflation In Ireland

November 10, 1998

The Republic of Ireland is sometimes called the "Celtic Tiger" because its economy has been growing for 10 years, while much of Europe has languished. But some of the Irish are concerned that the measures necessary for entry into the euro currency union may fuel inflation and hurt the country's competitive position in world markets.

  • Interest rates in Ireland are relatively low, compared to the U.S., with its key short-term rate at 6.2 percent last month -- however, its interest rates must fall in line with the 3.3 percent interest rate in Germany and France.
  • Price inflation is running at 3.2 percent a year, which is twice the average for the European Union.
  • This year, growth in Ireland is expected to exceed 8 percent.
  • Its economy is unusual, say observers, because its is wide open to foreign trade.

"The risk is very much that there is going to be more overheating," says Ian Stewart, an economist at Merrill Lynch.

Source: David J. Lynch, "Irish Eye Risk of Inflation Invasion: Euro Moves Pose Danger," USA Today, November 10, 1998.


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