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Inflation risk are still 'high' says ECB member
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There is no room for complacency on euro zone interest rates and inflation, outgoing European Central Bank Governing Council member Klaus Liebscher said in an interview published on Monday.
Liebscher, who retires at the end of August, told the news agency Market News International that inflation risks remained to the upside in the medium term and it was not appropriate to speak of economic stagnation. The ECB held rates at 4.25 per cent on August 7 after raising them to a near seven-year high in July, but markets have written off the chance of further tightening this year as economic growth falls. Liebscher said the ECB's official stance of "no bias" on rates did not change its primary responsibility to protect price stability, which it defines as inflation of just below two per cent – less than half July's record 4.1 per cent rate.
Asked whether there was room for more monetary tightening, he was quoted as saying: "There is absolutely no room for complacency.
"The outlook over the medium term is that on the one side we only see a protracted period of inflation rates higher than our price-stability goal, and on the other side the reduction (of inflation) will only occur in a rather moderate way.
"There is of course no bias for the future, and there is no pre-commitment, but what really has to be done in the future depends on the data available."
The interview took place on Friday, a day after the last rate meeting when President Jean-Claude Trichet surprised markets by saying growth around the middle of the year would be "substantially weaker" than in the first quarter.
Liebscher said he could not rule out that the economic outlook was worse now than it was six months ago, but the fundamentals were sound and there was no room for undue negativity.
"If you switch to growth rates of 1.6-1.8 per cent, no one can really convince me that we are in stagnation," he said. ECB staff in June forecast growth this year of between 1.5 and 2.1 per cent.
But economists polled by Reuters expect the economy to contract in the second quarter and maybe the third quarter as well, resulting in a technical recession.
Market News reported that Liebscher, who has headed the Austrian central bank since 1998, said there was no discussion of raising or cutting rates last Thursday and there was "clear unanimity and a clear consensus" on the decision.
Lower oil prices, which were around $116 per barrel on Monday compared to $147 a month ago, were welcome for future inflation but caution was needed.
Liebscher, who retires at the end of August, told the news agency Market News International that inflation risks remained to the upside in the medium term and it was not appropriate to speak of economic stagnation. The ECB held rates at 4.25 per cent on August 7 after raising them to a near seven-year high in July, but markets have written off the chance of further tightening this year as economic growth falls. Liebscher said the ECB's official stance of "no bias" on rates did not change its primary responsibility to protect price stability, which it defines as inflation of just below two per cent – less than half July's record 4.1 per cent rate.
Asked whether there was room for more monetary tightening, he was quoted as saying: "There is absolutely no room for complacency.
"The outlook over the medium term is that on the one side we only see a protracted period of inflation rates higher than our price-stability goal, and on the other side the reduction (of inflation) will only occur in a rather moderate way.
"There is of course no bias for the future, and there is no pre-commitment, but what really has to be done in the future depends on the data available."
The interview took place on Friday, a day after the last rate meeting when President Jean-Claude Trichet surprised markets by saying growth around the middle of the year would be "substantially weaker" than in the first quarter.
Liebscher said he could not rule out that the economic outlook was worse now than it was six months ago, but the fundamentals were sound and there was no room for undue negativity.
"If you switch to growth rates of 1.6-1.8 per cent, no one can really convince me that we are in stagnation," he said. ECB staff in June forecast growth this year of between 1.5 and 2.1 per cent.
But economists polled by Reuters expect the economy to contract in the second quarter and maybe the third quarter as well, resulting in a technical recession.
Market News reported that Liebscher, who has headed the Austrian central bank since 1998, said there was no discussion of raising or cutting rates last Thursday and there was "clear unanimity and a clear consensus" on the decision.
Lower oil prices, which were around $116 per barrel on Monday compared to $147 a month ago, were welcome for future inflation but caution was needed.