ECB on high alert on inflation, top official says: report
The European Central Bank is in a state of high alert over inflation and financial markets are correct in expecting an imminent move on interest rates.
By Agencies |
VIENNA: The European Central Bank is in a state of high alert over inflation and financial markets are correct in expecting an imminent move on interest rates, a top ECB official said in an interview on Monday.
The ECB's rate-setting governing council "observed at its last meeting that the risks to price stability have increased still further in the medium term," executive board member Gertrude Tumpel-Gugerell told the financial daily WirtschaftsBlatt.
"As a result, we're in a state of heightened vigilance. The financial markets and public have interpreted our signal correctly," Tumpell-Gugerell said.
At the ECB's rate-setting meeting this month, central bank president Jean-Claude Trichet hinted at a possible rise in borrowing costs as early as July to help put a lid on inflation, which soared to 3.6 pc in May.
While the bank had decided to leave its key rate unchanged at 4.0 pc this month, Trichet said the ECB was not ruling out a small tightening of monetary policy some time soon.
Tumpell-Gugerell saw the latest surge in inflation -- fuelled by soaring food and energy prices -- as a "warning signal".
"If these price increases lead to a hardening of longer-term inflation expectations, additional price and wage increases could trigger an upward spiral," she warned.
Tumpell-Gugerell conceded that economic growth was likely to lose momentum.
"But we're expecting only a temporary dent," she said. Turning to the weakness of the dollar, Tumpell-Gugerell said the ECB took into account exchange rate movements and their effect on growth and inflation when making its monetary policy decisions.
"The ECB is concerned about the possible implications of excessive exchange rate fluctuations on economic and financial market stability," she said.
"Strong fluctuations in the external value of the dollar are of particular importance," she said.
The ECB's rate-setting governing council "observed at its last meeting that the risks to price stability have increased still further in the medium term," executive board member Gertrude Tumpel-Gugerell told the financial daily WirtschaftsBlatt.
"As a result, we're in a state of heightened vigilance. The financial markets and public have interpreted our signal correctly," Tumpell-Gugerell said.
At the ECB's rate-setting meeting this month, central bank president Jean-Claude Trichet hinted at a possible rise in borrowing costs as early as July to help put a lid on inflation, which soared to 3.6 pc in May.
While the bank had decided to leave its key rate unchanged at 4.0 pc this month, Trichet said the ECB was not ruling out a small tightening of monetary policy some time soon.
Tumpell-Gugerell saw the latest surge in inflation -- fuelled by soaring food and energy prices -- as a "warning signal".
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"If these price increases lead to a hardening of longer-term inflation expectations, additional price and wage increases could trigger an upward spiral," she warned.
Tumpell-Gugerell conceded that economic growth was likely to lose momentum.
"But we're expecting only a temporary dent," she said. Turning to the weakness of the dollar, Tumpell-Gugerell said the ECB took into account exchange rate movements and their effect on growth and inflation when making its monetary policy decisions.
"The ECB is concerned about the possible implications of excessive exchange rate fluctuations on economic and financial market stability," she said.
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"Strong fluctuations in the external value of the dollar are of particular importance," she said.
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