SINGAPORE Central banks' injections of cash into money markets have merely served to stabilise market rates and should not be seen as bailing out speculators, European Central Bank Governing Council member Christian Noyer said on Tuesday.
The world's top central banks have pumped hundreds of billions of dollars into money markets in the past several weeks after uncertainty about the fallout U.S. subprime mortgage crisis made banks reluctant to lend to each other.
"Put very simply, financial turbulence and uncertainty have suddenly triggered an upward shift in the demand for central bank money," Noyer said in a commentary published in the Financial Times.
Noyer, who is also the governor of the French central bank, said that without temporary cash injections, short-term market rates would have to rise, effectively leading to a tightening of monetary conditions.
"In contrast, liquidity provision by central banks has ensured that the overall policy stance has remained unchanged."
Noyer said recent central bank actions had nothing to do with bailing out careless investors.
"Excessive risks were taken and losses will have to be accepted. It is important that monetary and financial authorities take no action that would prevent this process from running its course, let alone be seen to be condoning past or future excesses," he said.
"In the future, monetary policy may have to be adjusted, not for the purpose of easing financial tensions, but according to its own objective and in view of the state of the economy."
Turning to ECB monetary policy, Noyer reiterated the central bank's message that the heightened uncertainty about the economic impact of the credit turmoil meant the authority needed more time and information to decide on the future course of rates.
"The overall stance is "still on the accommodative side" and ... "the medium-term outlook for price stability remains subject to upside risks," Noyer said, repeating the central bank's statement issued after its September 6 policy meeting, when it kept its benchmark rate steady at 4 percent.
Noyer also said that the overall economic impact of the credit crunch should be limited despite uncertainty over how subprime losses would play out in the market.
"Available data indicate that, unless the economy unexpectedly deteriorates, those losses will remain small in comparison with total available capital in the financial system and should be easily absorbed."