Central banks’ focus is still on inflation

CENTRAL Bank governor and European Central Bank policy maker John Hurley says the world’s central banks are concerned about oil and commodity price-driven global inflation.

In a speech delivered to an Oireachtas parliamentary committee, Mr Hurley said the ECB had raised euro zone interest rates this month in an attempt to combat the problem, warning that it had the potential to sap Europeans’ prosperity and undermine economic confidence.

“Inflation ... creates uncertainty for savers and investors and undermines confidence in an economy in a way that ultimately damages the welfare of its citizens,” he said.

In a near repeat of a speech earlier this week at the launch of the Central Bank’s annual report, he said that while euro area economic activity had so far remained robust, the US and Britain — two of Ireland’s key trading partners — had hit problems.

Falls in Irish banking stocks may be overdone Governor Hurley said when asked about a 75% drop in shares in Irish financial institutions since early last year.

“I don’t comment on equity markets or areas where the markets know best,” Hurley told the finance and public services committee of the Oireachtas. “But I was asked recently and I said I thought the drop in (bank) share prices may be overdone.”

“Economic activity has remained stronger in the euro area, although an easing in growth rate is expected in the short-term before a recovery towards potential rate of about 2%.

On interest rates Mr Hurley said the ECB governing council has “no bias” on the future direction of interest rates.

“Controlling inflation is the best possible thing we can do to contribute to growth.”