In a speech on monetary policy and the economic outlook, Central Bank of Ireland Governor Gabriel Makhlouf said the European Central Bank Governing Council unanimously raised the deposit facility rate by 25 basis points to 2.25% in response to renewed inflation pressure from higher oil prices and wider supply disruptions linked to the war in the Middle East. He said the move was aimed at preventing an energy-led price shock from becoming embedded in wages, prices and short-term inflation expectations, while stressing that it should not automatically be read as the start of a new tightening cycle on the scale seen in 2022 and 2023. Policy, he said, remains data-dependent because the persistence of the shock, its pass-through into core prices and the response of wages and margins remain uncertain. Makhlouf said euro area headline inflation rose to 3.2% in May from 1.9% in February, with energy inflation close to 11%, while supply-chain pressures, input costs and delivery times all point to further goods-price pressure. ECB staff projections put baseline inflation at 3.0% in 2026, peaking at 3.4% in the second half of the year, before averaging 2.3% in 2027 and 2.0% in 2028, with adverse energy scenarios leaving the outlook materially weaker. For Ireland, he said modified domestic demand is expected to slow to a more moderate pace, inflation has been revised higher and household real incomes and consumption lower, although investment remains stronger. He also said the 12.1% quarter-on-quarter fall in Ireland's first-quarter 2026 GDP largely reflected multinational trade effects, including contract manufacturing and merchanting, rather than a deterioration in domestic conditions, noting that modified domestic demand rose 0.6%. Makhlouf said the Central Bank of Ireland will publish its second Quarterly Bulletin later in the week with updated projections and a fuller assessment of the Irish outlook. He also said the bank will shortly consult on a refreshed framework for assessing the impact of its regulatory decisions.
Central Bank of Ireland2026-06-16
Central Bank of Ireland Governor backs ECB rate rise to 2.25% as Middle East shock lifts inflation risks
Central Bank of Ireland Governor Gabriel Makhlouf said the ECB's 25 basis point rate increase to 2.25% was needed to counter inflation pressure from the Middle East energy shock and guard against spillovers into expectations. He said the move does not necessarily signal a new extended tightening cycle, but policy will stay data-dependent. For Ireland, he said the recent GDP fall mainly reflected multinational activity rather than domestic weakness, with modified domestic demand still rising.