Global financial market turbulence has tilted the balance of risks to euro zone economic growth to the downside, Central Bank chief John Hurley said today.
Hurley, who is also a member of the European Central Bank's Governing Council, said the volatility in world markets was expected to continue into the early part of 2008.
'More generally, as is the case for the rest of the global economy, the broad repricing of risk and tightening of financial conditions has tilted the balance of risks to euro area growth to the downside,' he said in a speech to the Finance Dublin Securitisation Conference
Hurley said the ECB's Council had signalled that there was a need to gather more information and assess new data, including the new projections due in early December, before drawing further conclusions for monetary policy.
He repeated that activity in the interbank market remained well below normal and is likely to revert to previous levels only when a greater degree of confidence returns to markets.
He said recent developments in financial markets, such as the temporary closure of the covered bond market, pointed to a further tightening in liquidity and reinforced the view that there was still 'some way to go' before more 'normal market conditions' returned.
'Uncertainty is likely to remain high and confidence will only return to markets when the impact on larger institutions and, indeed, their responses, becomes clearer,' he said. 'Until we reach that point markets may continue to remain fragile and vulnerable to bad news.'
