remarks by governor gabriel makhlouf at dublin chamber of commerce 15 september 2022 speech looking through the waves : the value of resilience speech at dublin chamber of commerce delivered on 14 september 2022 thank you for the opportunity to speak to you tonight. i am going to talk about the current economic outlook, the economic policy response to the challenges facing households and businesses in ireland and across the euro area and the importance of looking at the horizon and seeing through waves. with the two successive shocks of covid - 19 and the russian invasion of ukraine, households, businesses and policymakers are faced with conditions the like of which we have not experienced in over 40 years, and markedly different from those in the decade leading up to the pandemic. add into this mix the geopolitics, the changing shape of globalisation and the more fundamental economic transitions taking place as a result of climate change, digitalisation and an ageing population, both the near and medium term economic outlook are particularly challenging. they require considered choices for both fiscal and monetary policy and probable structural reform. the outlook the change in the near - term outlook through 2022 has been significant. russia ’ s invasion of ukraine has exacerbated and prolonged the supply - side problems arising from the covid - 19 pandemic, with a particularly obvious effect on energy and food commodity prices. as a result, business input costs and consumer price inflation have remained high both domestically and in the euro area for longer than would have occurred in the absence of these adverse shocks. this global inflationary shock is eroding the purchasing power of households ’ disposable incomes as well as creating a more difficult environment for business investment. while there is some evidence that the supply - chain challenges many industries experienced during the pandemic have eased, the continued high level of both energy prices and uncertainty presents significant challenges. euro area inflation has continued to rise and has reached undesirably high levels. in august headline inflation rose to 9. 1 per cent. stripping out the more volatile components, ‘ core ’ inflation was 4 per cent suggesting that initial price pressures in energy and commodities have spilled over into many of the everyday goods and services we consume. at last week ’ s meeting of the ecb ’ s governing council, we decided to increase our policy rates by 75 basis points. our aim is to dampen the excessively high inflationary pressures that we ’ re currently seeing in the euro area and achieve our target of 2

ambitious targets for capital spending as part of the national development plan. public investment, both by itself and as a means of crowding in private investment, is necessary to build our economic resilience. appropriate levels of investment in priority areas such as housing will reduce the impact of future adverse shocks by addressing the structural challenges we face in infrastructure and climate change. balancing the effective delivery of needed public investment in the current high - inflation environment will require careful management and prioritisation in other areas, in particular when it comes to choices regarding current expenditure and taxation. recent analysis by central bank staff shows that further stimulating economic activity with additional permanent current spending would risk creating excess demand and in the process would add to already high inflation. as the ecb ’ s governing council said last week, “ fiscal support measures to cushion the impact of higher energy prices should be temporary and targeted at the most vulnerable households and firms to limit the risk of fuelling inflationary pressures, to enhance the efficiency of public spending and to preserve debt sustainability. ” increases in permanent core expenditure should be funded by permanent revenue - raising measures to avoid introducing a vulnerability in the public finances as well as reducing the risk of creating imbalances in the economy as a result of excess demand. the economy in general, and the public finances in particular, have benefited from the exceptionally low interest rate environment that has prevailed over recent years. as policy rates increase – and over the next several meetings the governing council expects to raise interest rates further – sovereign financing costs will increase. the reduction of public debt, supported by a sustainable funding base for public expenditure, should remain a key priority in the years ahead. as interest rates rise, financial markets are more likely to increase the focus on fundamentals such as relative debt levels when pricing sovereign bonds. credit worthiness will continue to matter. the longer term : building resilience from a policy perspective it is important to also take a step back and consider the longer - term. in fact, i think this should be a more central part of our policy deliberations. our experience of the past few years suggests a greater tendency for medium - to - longer term issues and economic shocks to coincide more frequently with day - to - day conditions. the current experience of energy prices is a case in point, where the challenges and opportunities presented by the necessary transition to a less carbon - intensive economy are becoming obvious in a shorter time period than previously expected. consequently, anchoring public policy in achieving a more resilient