Quaden Says Europe Inflation Will Remain Above ECB
European Central Bank council member Guy Quaden predicted inflation will remain above the bank's 2 percent target in coming months, suggesting he sees little room to cut interest rates.
“The current level of inflation in the euro zone is well above our definition of price stability and the prospects for the coming months are not really reassuring,'' Quaden, who also heads Belgium's central bank, said in an interview in Washington yesterday.
The Frankfurt-based ECB this week left its benchmark interest rate at 4 percent after European inflation accelerated to 3.5 percent in March, the fastest pace in almost 16 years. Economists surveyed by Bloomberg News last week forecast policy makers would start cutting borrowing rates in the third quarter.
Fellow ECB council member Erkki Liikanen said in a separate interview in Washington that “it's very important'' the central bank brings inflation back below 2 percent within 18 months. Both officials said it was vital the bank control inflation expectations.
“Our current monetary stance and our policy rate are appropriate in order to anchor inflation expectations, which is our first duty,'' Quaden said. Liikanen said inflation “expectations must be anchored.''
The International Monetary Fund this week cut its forecast for economic growth in the euro-area this year to 1.4 percent from 1.6 percent and said the inflation rate will slow to 1.9 percent next year http://paydayloans-on.com. The ECB “can afford some easing'' of interest rates, it said.
More Optimistic
Bank of France Governor Christian Noyer told reporters in Washington the ECB is more optimistic about the expansion and noted there is “not the slightest'' sign of a credit squeeze in its region.
The ECB's latest predictions, published in March, are for economic growth of 1.7 percent in 2008 and inflation of above 2 percent this year and next.
The inflation threat means the ECB will leave its key interest rate at its current six-year high until the end of the third quarter, according to the median forecast of 68 economists surveyed this week by Bloomberg News.
ECB council member Axel Weber told reporters in Washington on April 11 he didn't “see any room to cut rates given the current environment.''
Quaden said the European economy may slow as the U.S. teeters on the brink of recession. “It is difficult to believe that the economic activity in Europe will remain unaffected by the developments in the financial economy and in the real economy in the U.S.,'' he said.
While there was much “uncertainty'' surrounding the outlook for inflation, a slowdown in global economic growth should help restrain prices, he said.