The global economy faces some damage from the recent turmoil in financial markets but central bankers are prepared to deal with the situation, policymakers said on Monday.
Central bankers gathering in the Swiss city of Basel for regular talks on the economy and market said they needed more information to gauge the precise impact of the turbulence but at least the global economy was starting from a solid base. Bank of Thailand deputy governor Atchana Waiquamdee said the current episode differed from the Asian financial crisis of the 1990s.
“That was due to fundamental weakness. But global fundamentals are strong now,” she told Reuters on the sidelines of meetings at the Bank for International Settlements.
Still, Mexican central bank governor Guillermo Ortiz said all policymakers expected some global impact from the market upheavals over the past month, which were sparked by concerns about the fallout from US subprime mortgage problems.
Ortiz said the global economy was still linked to the US and would suffer particularly if there was a serious slowing in US economic activity.
“To the extent that this affects the real economy and in particular the US economy then we will see that the second round effects are likely to impact the whole world,? Ortiz said.
?Central banks are well aware of this issue and hopefully there will be sufficient action to avert this bad outcome.”
Shockingly weak US jobs data on Friday triggered another round of falls in stocks and the dollar, sending safe-haven bonds prices sharply higher.
The data also cemented expectations the US Federal Reserve would cut interest rates later this month, pushing short-dated US yields to two-year lows. The dollar hit a 15-year low against major currencies.
Chile?s Vittorio Corbo also said central banks were prepared to deal with the fallout from the turmoil, which could drag on for as long as a year. ?Fortunately the world economy is in good condition but we are aware that there will be an impact, Corbo said?.
?We have to have more time to observe. It takes time to unwind, there is a lot of debt which needs to find liquidity, it has to take time to be digested. But as central banks we are prepared to deal with consequences.