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Republic of Ireland: Financial Support

House of Lords written question – answered on 28th June 2012.

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Photo of Lord Laird Lord Laird UUP

To ask Her Majesty's Government, further to the Written Statement by Lord Sassoon on 11 June (WS 120), what are the current, past and proposed rates of interest charged on the bilateral loan to the Republic of Ireland, the repayment arrangements, and the current interest rate charges the United Kingdom is paying on the markets for loans.

Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury

The interest rate on the UK bilateral loan to Ireland is as set out in the loan agreement the Financial Secretary to the Treasury deposited in the Library of the House in January 2011. The rate of interest currently applicable to each tranche of the loan is equal to the 7.5 year sterling swap rate, plus a margin of 2.29%.

The Financial Secretary to the Treasury announced on 11 June 2012 that the Treasury has agreed in principle to a new, lower interest rate on the UK bilateral loan. The new rate will represent the UK's cost of funds plus a small service fee of 0.18%. The UK's cost of funding is defined as the average yield on gilt issuance in the six months prior to the disbursement of a tranche.

This is subject to the loan agreement being revised to reflect the new rate. Once the loan agreement has been revised, the new interest rate will apply retrospectively to those tranches of the loan already disbursed. The Financial Secretary has committed to update Parliament once the revised loan agreement has been signed and finalised.

The bilateral loan to Ireland is drawn in eight tranches, each with a 7.5 year term and with repayment of principal in full at the maturity date.

In the six months to 15 June 2012, the Debt Management Office issued conventional gilts with an average nominal yield of 2.000% and index-linked gilts with an average real yield of 0.022%.

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