ECB satisfied with euro and interest rates

(REUTERS)

European Central Bank members yesterday said they are comfortable with the current euro rates and interest rate levels.

ECB Governing Council member Axel Weber said current interest rate levels are appropriate, signalling that the central bank will stick to low rates for some time.

While there is no risk now of inflation accelerating, the outlook for European economies is patchy with the pace of recovery differing from country to country, Weber told the Nikkei in an interview.

Weber, who is also president of Germany's Bundesbank, added that the ECB's unwinding of special fund-supply programmes introduced during the global financial crisis did not signal a shift in policy rates.

His remarks echo those of ECB President Jean-Claude Trichet, who has said the unwinding of unconventional measures carried no message for interest rates. The ECB took a small step towards unwinding its extraordinary support for the euro zone economy earlier this month, but left much of its cash buffer for banks in place as it forecast a fragile recovery.

Economists said they expected the ECB would keep up its gradual exit strategy with no rise in interest rates, now at one per cent, seen until late this year or even into 2011.

Many of the world's major central banks have been steadily reining in their extra support for the economy, and the ECB's withdrawal of the banking liquidity steps is seen as a precursor to eventual rises in interest rates. On Greece's debt woes, Weber said the cost of funding for the country will likely fall as financial markets welcome its fiscal reconstruction plan.

ECB Governing Council member Ewald Nowotny said there is no reason to worry about the euro currency's retreat from high exchange rates against the US dollar. "There is certainly no need to worry," Nowotny told Austrian daily Oesterreich when asked about the stability of the common European currency.

"The exchange rate to the US dollar has always changed sharply since the euro existed. The current rate is still in the upper region. For the broader economy, it's even positive that the euro has retreated from its previous overvaluation," he said. "Everybody can live well with this rate."

Nowotny said Austria's financial stability had improved since the economic crisis abated in emerging Europe, where Austrian banks have a large exposure, but bad debt charges would continue to rise "significantly" next year.

He also said he hoped planned European Union regulation of hedge funds could be agreed upon before summer.

"This is absolutely necessary," he said. "I hope there will be a concrete agreement before the summer, especially to introduce more transparency and some minimum standards."

 

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