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ECB sticks to tough line on inflation
European Central Bank policymakers held their tough line on inflation risks yesterday, despite fresh turmoil on financial markets and an emergency cut in US interest rates.
- Reuters
- Published: 00:41 January 23, 2008
Brussels/Lisbon: European Central Bank policymakers held their tough line on inflation risks on Tuesday, despite fresh turmoil on financial markets and an emergency cut in US interest rates.
The ECB declined to comment on the US Federal Reserve's 75 basis point interest rate cut, which took US rates below the euro zone's for the first time since late 2004 and surprised some people at the ECB as well as market participants.
But earlier comments by ECB policymakers suggested there was no consensus for a similar move in the euro zone, although opinion remains divided on the economic outlook.
Executive Board members Juergen Stark and Jose Manuel Gonzalez-Paramo said the euro zone's economic fundamentals were sound, and pointed to continued upward pressure on inflation, a stance echoed by German Bundesbank President Axel Weber.
However, Portuguese central bank governor Vitor Constancio said European growth could be slower than earlier expected, comments which were in line with growing market expectations that the ECB may have to change tack before the end of the year.
Mounting pressure
The ECB has kept interest rates at four per cent since mid-2007 but economists believe the Governing Council is increasingly squeezed by the prospect of slower growth on the one hand and price risks on the other.
"Currently, we are dealing with a relatively high inflation rate of more than four per cent," Stark told German radio station Deutschlandfunk. "That will continue for the next few months. We will monitor closely how inflation develops."
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