Financial market turmoil likely overdone: Australian central banker

Turmoil in global financial markets is likely overdone and only has limited implications for financial stability in Australia as direct exposures for the local banking system is quite limited.

Reserve Bank of Australia Assistant Governor for Finance, Malcolm Edey told a shareholders association investor forum in Sydney on Thursday that markets had been through periods of heightened volatility in recent years but had always recovered.

"But, that said, there has clearly been an increase in market volatility around the word in recent times and a heightened focus on financial risks," Edey said.

Edey said there had been little new economic data to justify a significant reassessment of the global outlook which has been in a period of recovery for "about seven years" since the global financial crisis, and that recent weakness in oil prices is normally considered a net positive.

"The hypothesis that falling equity and falling oil prices are inter-related responses to a weakening in global demand is hard to sustain," Edey said.

"The falls in oil prices seem to be mainly driven by strong supply, not weak demand, as indeed has been the case for a number of other commodities such as iron ore."

While its impossible to be definitive on the risk environment, it was also relevant to note that market and media commentary "often errs on the side of being unjustifiably gloomy."

"I think these points argue against putting excessive focus on recent market movements," Edey said. Endit