Liikanen urges controlled and timely policy readjustments

In a press conference held after the latest edition of the Bank of Finland's journal Euro & talous was released, the governor of the central bank, Erkki Liikanen, said exits from emergency policy positions should be "controlled and timely".

As the eurozone sovereign debt crisis worsened towards the end of 2011, central banks in the region were forced to take policy decisions that would "break the negative spiral and restore confidence", said the central bank.

The governor expressed his faith in the steps taken by the European Central Bank (ECB). "The Eurosystem's two three-year refinancing operations have had a decisive impact on market developments," said Liikanen.

However, while these operations had worked well, the governor stressed they had not solved the underlying problems. "Central bank measures can be used to calm the financial markets, but a permanent solution to the debt crisis will require both successful fiscal and structural policies and a controlled and timely exit from the temporary central bank measures," he said.

Now is the time for countries to adhere to reform agendas, Liikanen said. "Slippages in the implementation of political decisions in the current fragile economic and market situation would be dangerous and costly," he said.

Discussing the challenges posed to global economic growth, Liikanen focused on the situation in Europe. At its March meeting, the governing council of the ECB decided to leave its monetary policy stance unchanged and lowered its growth forecast, raising the short-term inflation forecast. "Euro area inflation will continue above 2% in 2012," said the governor. "Over the policy-relevant medium term, inflation risks remain balanced and inflation expectations firmly anchored."