In a blog post, Central Bank of Ireland Governor Gabriel Makhlouf explained why he supported the European Central Bank Governing Council’s 0.25 percentage point rate increase, which lifted the deposit facility rate to 2.25 percent. He linked the move to renewed inflation pressure from higher oil and energy-related prices following the Middle East conflict, with euro area headline inflation rising to 3.2 percent in May, energy inflation close to 11 percent and services inflation at 3.5 percent. He said the decision should not be read as the start of a 2022 to 2023 style tightening cycle, with future policy remaining meeting by meeting and data dependent. The blog also set out why the sharp 12.1 percent quarterly fall in Irish GDP in the first quarter should be interpreted cautiously. Makhlouf said the decline was concentrated in the pharmaceutical sector and in offshore goods-related net trade, especially merchanting and contract manufacturing activity by multinationals, rather than in broad domestic activity. Modified Domestic Demand rose 0.6 percent in the quarter, and he argued this remains a better guide to domestic conditions and inflationary pressure in Ireland. He added that, excluding the distortion from Irish GDP, euro area GDP in the first quarter would have shown growth of 0.2 percent rather than a contraction of 0.2 percent. The Central Bank of Ireland said its next Quarterly Bulletin, due on 18 June, will include further analysis of the drivers and implications of the first-quarter GDP outturn for the Irish economic outlook.
Central Bank of Ireland2026-06-12
Central Bank of Ireland explains support for ECB rate rise to 2.25 percent and says Irish GDP slump does not change policy view
In a blog post, Central Bank of Ireland Governor Gabriel Makhlouf said he supported the ECB’s 0.25 percentage point rate increase to 2.25 percent because energy-led inflation pressures have strengthened again. He said this does not imply a predetermined tightening cycle and that future moves will depend on incoming data. He also said the 12.1 percent fall in Irish first-quarter GDP was driven by multinational and pharmaceutical distortions and does not materially change the policy reading of Irish or euro area conditions.