Friday September 5, 03:55 PM
Gonzalez-Paramo says ECB will act against inflation
SAN SEBASTIAN, Spain , Sept 5 (Reuters) - The European Central Bank is ready to fight high inflation despite rising uncertainties about economic growth, Executive Board member Jose Manuel Gonzalez-Paramo (Stuttgart: 896541
- news) said on Friday.
Gonzalez-Paramo said the ECB's credibility was at stake after President Jean-Claude Trichet on Thursday said it would not get euro zone inflation back on target until 2010.
'The ECB has an obligation to act against inflation to maintain its credibility,' Gonzalez-Paramo said in a speech to a conference in San Sebastian.
The ECB left interest rates at 4.25 percent on Thursday. Trichet said the ECB's outlook for monetary policy and the economy had not changed significantly since last month and the bank had no bias on future rate moves.
Asked if he thought it acceptable for the bank to achieve price stability only in 2010, Gonzalez Paramo said the ECB had an anti-inflation mandate to defend.
'Levels of inflation above two percent in the medium term are not compatible with price stability. You can deduce from that what you like,' he told reporters. 'The ECB will do at every moment what is necessary to guarantee price stability, you can be sure of that.'
MARKET INTERPRETATION
Euro zone inflation eased only slightly in August to 3.8 percent from the record 4.0 percent reached in June and July, and remains around double the ECB's medium-term price stability target of just below 2 percent.
The ECB released staff projections on Thursday showing inflation would be higher than previously expected this year and next, while economic growth would be lower.
Risks to inflation are on the upside, while growth risks pointed downwards, Gonzalez-Paramo said.
He saw particularly high uncertainties around growth, given risks of higher raw material prices, but he expected a progressive recovery in coming quarters after the euro zone's first ever contraction between April and June.
Gonzalez Paramo was asked if the market had correctly interpreted Trichet's comments on Thursday, which did not change expectations interest rates would remain on hold for several months, before a cut in the first half of 2009.
'The market has its function, we have ours. Markets process information and know how we behave. It was very clear President Trichet said that right now we have no bias, we'll do what is necessary at each moment to comply with objectives.'
COLLATERAL RULE RUMOURS
As well as the new forecasts, the ECB also unveiled tougher rules on assets that commercial banks can submit as security to borrow central bank funds, and announced the ECB would roll over extra three-and six-month liquidity tenders [ID:nL4147820]
The changes are expected to make it less attractive for banks to use asset-backed securities as collateral and push up the overall cost of borrowing funds from the ECB.
Market spreads narrowed initially on the news of the rule changes but widened again as traders realised they would not affect liquidity around the end of the year.
(Reporting by Andrew Hay; Editing by Victoria Main) Keywords: ECB/GONZALEZ PARAMO
|
Send Article by Email
Send Article by IM
Blog This with Y! 360
Printable View
