By Andrew Bushe
DUBLIN — Concern about spiraling property prices has been voiced by the governor of the Central Bank, who fears the situation could worsen.
In his first television interview, Maurice O’Connell said that a substantial reduction in interest rates would be made before the country enters the EMU in January.
"Given the choice, we would hold interest rates now rather than reduce them," O’Connell said. "I don’t know to what extent the reductions in rates are already discounted. It’s not the best thing for the Irish economy at this time, but if you are a small country, you often have to live with the preferences of bigger people."
He said the Central Bank has said consistently that it is "uneasy" about the huge increases in property prices.
"We were very pleased earlier this year to see the government trying to do something about it."
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He said it remained to be seen whether the measures in the Bacon report were enough, but it seemed to the bank that the property boom was still continuing and could get worse.
"If it does it is not good for us. It is not good for us socially and I don’t think it is good for us economically either."
He said suggestions that there could be negative equity in the property market within the next six months were exaggerated. "I don’t believe that," he said. "I don’t see any evidence for that."
On the forthcoming changeover to the Euro in January, O’Connell said he was optimistic that that Ireland was well prepared and it would all go well.
"I would be happier if Britain were part of this Euro area," he said. "I it would give an extra balance and extra anchor to the area, but we have no choice in this. They have made their choice and they are staying out and we can live with that. That’s the decision we have made.
"We have lived with a fluctuating Sterling for some time now and I think we have managed it quite well. I would be optimistic that Sterling won’t fluctuate to the same extent in the future."
O’Connell said he was "unhappy and upset" by the recent crisis of confidence in Irish banks.
He said the allegations that had emerged about the banks had related to the past and he believed there was a strong compliant culture in the banking system today as regards tax evasion on accounts.
There was a fundamental change of direction when the Criminal Justice Act was introduced and legislation was brought in against money laundering.
O’Connell said that in the past some of the banks might have abused the trust the Central Bank had placed in them.
The Government has set up an implementation group headed by former Progressive Democrat TD Michael McDowell to advise them on the establishment of a single regulatory authority for the financial services sector.
This follows allegations of widespread tax evasion on non-resident and offshore accounts and other banking controversies.