Since March 2011, economic conditions (both in Ireland and in Ireland’s main international trading partners) have generally been worse than the base case employed in PCAR2011, but rather better than the stress case. Of course in the coming years the implementation of Basel 3 will also lead to higher capital ratios.
Yet, even if this slowdown were to materialize, this in itself is unlikely to bring inflation back to our objective over the medium term. Taken together, all this evidence is fueling my concerns that inflation will remain high for quite some time to come.