Irish exporters should “think quite a lot” about how to fund themselves given higher interest rates, the European Central Bank’s chief economist has advised.

Philip Lane, the former head of the Central Bank of Ireland, said market expectations are for rates to keep rising and “remain relatively high for the next number of years”.

“Given the very large increase in inflation, it has been important to raise interest rates quite a bit,” he said.

“On rates, more increases are expected and [markets expect] that rates will remain relatively high for the next number of years,” he told an event organised by state agency Enterprise Ireland on Wednesday.

“What happens, if you like, five years out? Are we going back to the super-low rates that we got used to? In fact, the answer is no. The market believes that, essentially, this inflation shock is resetting the long-term equilibrium.”

The ECB has hiked rates six times since last July as inflation soared into double digits, with its main lending rate reaching 3.5pc and its deposit rate hitting 3pc.

Markets expect two more rate rises this year of 0.25 each.

Eurozone inflation cooled to 6.9pc in March, the EU’s statistics agency said today, down from 8.5pc the month before. The Department of Finance believes Irish inflation has peaked, after it slowed to 7.7pc in March, according to the Central Statistics Office.

Mr Lane said the ECB would make sure interest rates were “appropriate for the inflation situation we face” but said decisions on future hikes would de[end on the “data” – including inflation rates and financing conditions for firms.

Mr Lane was upbeat on global and European growth prospects and on price hikes, saying most of the inflation seen in the last year will reverse in 2023.

He said a recession is not a necessary corollary of higher interest rates.

“We do think the combination that’s most likely is the European and world economy growing and inflation coming down,” he said.

He said it was in the interest of firms for inflation to come down.

“High and volatile inflation makes it very difficult to manage costs, difficult to set prices correctly, difficult to make plans for the coming years. It really is a very important period for many firms.”

He advised firms with spare cash to look into term deposits, as rates have gone up substantially in the last number of months.

Companies looking for funding should “maybe” turn to the bond markets if bank lending is becoming tougher, he said.

His comments came after Enterprise Ireland chief executive Leo Clancy said that some of the export growth enjoyed by Irish firms last year was down to rising prices.

Exports grew by a record 19pc on 2021 levels, reaching €32.1bn, Enterprise Ireland said on Wednesday.

Irish price hikes are slowing after a spike in February, but mortgage interest payments, energy and food prices are continuing to rise, according to the CSO.

Forecasters from the Central Bank, Economic and Social Research Institute, International Monetary Fund and Department of Finance predict inflation will average between 4.5pc and 5pc this year, down from almost 8pc in 2022.

The Department of Finance said yesterday that inflation is expected to come down to 2.5pc next year.

Reporting: The Irish Independent