ECB Hurley: Rates Should Rise On "Clear Signs" Of Recovery

DUBLIN - European Central Bank executive board member John Hurley said Tuesday that monetary policy must support the real economy and rates should only rise with "clear signs" of a recovery.

"The pace of global recovery is expected to be gradual and downside risks to the global outlook remain," said Hurley, who is also the governor of Ireland's central bank. "Monetary policy must continue to provide support to the real economy for as long as is necessary."

"Policy rates should only be increased once there are clear signs that a sustainable recovery has begun," he said.

Hurley predicts that Ireland's gross domestic product will fall by 8.3% in 2009 and by 3% in 2010, and says a gradual recovery won't start to appear until 2011. He said it will be important to reverse the deterioration in cost competitiveness and fiscal imbalances.

Speaking at the launch of the bank's annual report, he said domestic unemployment will rise to 13% in 2009, from around 10.2% now, before reaching 15% in 2010. He added that Ireland's consumer price index will fall 4% in 2009 and remain flat next year.

Hurley said "vulnerabilities" remain in the banking sector and "financial conditions are tight...Funding conditions remain very challenging for Irish banks and this is reflected in their significant recourse to the Eurosystem."