- Macro-financial outlook for the global economy is highly contingent on how the COVID-19 pandemic develops
- Central Bank has prioritised dealing with the pandemic’s impact on the financial system and on consumers
- A key part of our job is to ensure we have the tools to address systemically important segments of the financial system
Speaking at the European Financial Forum today Governor of the Central Bank of Ireland Gabriel Makhlouf provided an overview of the outlook for the macro-financial environment and an outline of the Central Bank’s priorities for the year ahead.
The Governor said that “The economic policy response to the pandemic has had two strands. The first, and most important, has been the fiscal policy response with actions to contain, cushion, and counteract the impact on households and firms. The second strand has seen other policymakers respond with a range of monetary, macro and micro prudential actions to prevent amplification of the shock by the financial system.” He cautioned that “the more prolonged the need for measures to contain the pandemic, the greater the risk that liquidity problems will evolve into solvency pressures for affected businesses, increased risk of financial difficulties for households, and greater challenges for the financial system and wider economy. We cannot be complacent about potential risks to financial stability.”
Governor Makhlouf added that “For authorities, now is not the time to unwind either fiscal or monetary support. And for the financial sector, as it moves from absorbing the shock to supporting the recovery, a key focus must be on managing risk, while rebuilding resilience.”
The Governor noted that the Central Bank’s mandate “allows us to take a comprehensive view across sectors and tackle challenges across the entire, inter-connected, system, including as an integral part of the European Union and its institutions and frameworks. Resilient financial systems are in the interest of the community as a whole, and particularly during a time of disruptive change.”
On Business Interruption Insurance the Governor said the recent High Court judgement “is welcome and significant, and will reinforce our system-wide supervisory action. We have been clear that where a relevant court outcome has a beneficial impact for similar customers, firms should take urgent action to ensure those customers benefit from the final outcome. We continue to expect that firms honour and pay valid claims and do so urgently.” Governor Makhlouf directly addressed the firms affected by this judgement when he said “Any continuing failure to do the right thing by your customers is inexcusable and we won’t hesitate to take action accordingly.”
Governor Makhlouf set out some of the priorities for the Central Bank in 2021 in the areas of monetary policy, macroprudential policy, the impact of COVID-19 on the financial system and consumers, building resilience into financial system against future shocks, markets based finance, digital transformation and climate change.
The Governor concluded by saying that a key priority for the Central Bank “is to engage with the public and stakeholders across the whole economy, in particular to listen and learn. Better engagement helps us understand the issues faced by the businesses and households in the economy, the opportunities to enhance the performance of the financial system, and any risks that may be developing. It also helps consumers and the financial services industry understand what we do and why. In the spirit of listening and learning, we are starting a consultation aimed at improving our engagement. We want to build on our existing arrangements including through our Civil Society Roundtables and Consumer Advisory Group to enhance our mutual understanding of cross-sector issues across the financial system. “