BoE's King says provision of extra liquidity undermines pricing of risk |
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Wed, 12 Sep 2007 10:15
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LONDON (Thomson Financial) - The Bank of England's governor Mervyn King defended the central bank's arms-length approach to the instability sweeping the world's financial markets.Breaking his self-imposed purdah on the events of the last month or so, King said the provision of extra liquidity by central banks could potentially undermine the pricing of risk, and is unlikely to bring down spreads in short term London Interbank Offer Rates (LIBOR), the main manifestation of the credit crunch.And though he said the turmoil in the financial markets has clouded the UK economic outlook and said it is too soon to quantify the economic impact of higher short-term borrowing costs, he said it should not pose any long-term problems if managed well.'The current turmoil, which has at its heart the earlier under-pricing of risk, has disturbed the unusual serenity of recent years, but, managed properly, it should not threaten our long-term economic stability,' King said in a letter to John McFall, the chairman of the influential Treasury Select Committee, ahead of a meeting between the two next week.Despite his relative optimism, King conceded that the financial system is vulnerable to further shocks.pan.pylas@thomson.compp/pp/hjpCOPYRIGHTCopyright AFX News Limited 2007. All rights reserved.The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News.
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BoE's King says businesses pose main inflation risk UPDATE 