OESTRICH-WINKEL, Germany (MktNews) - While inflation risks in the euro area have become more balanced in recent months, that this doesn't necessarily mean that an European Central Bank rate move is needed at the moment, ECB President Wim Duisenberg said Wednesday.
"Price risks in the euro zone have become more balanced than they were late last year, but 'more balanced' doesn't mean that you subsequently have to take action" on interest rates, Duisenberg said at an event here organised by the European Business School.
"We'll wait and see," Duisenberg reiterated.
Duisenberg's remarks came in response to a question about whether pressure on the ECB to ease would mount following the Federal Reserve's move Tuesday to cut U.S. rates for the third time this year.
In his speech earlier, Duisenberg said that the ECB's current wait-and-see policy stance "reflects the fact that risks to price stability in the medium-term have become gradually more balanced over the past few months, although some factors which may entail upward risks still remain."
"At this stage, some factors still argue for caution," Duisenberg repeated, stressing that future wage developments "remain a source of upside risks to price stability, in particular if growth remains solid and the unemployment rate continues to decline."
Still, Duisenberg noted in particular that "the upward risks to price stability from the monetary side have declined over recent months."
Money supply growth continued to decelerate in February, carrying on the trend seen over the past year, he said.
At the same time, "strong" growth of loans to the private sector "warrants careful monitoring, although it can partly be explained by certain special factors," he said.
Duisenberg also reiterated that eurozone consumer prices continue to be affected by the feed-through from the euro's past weakness in tandem with sharply higher oil prices last year. At the same time, the role of the euro's exchange rate in the ECB's policy calculus is not as crucial as it was last autumn when the currency hit its all-time low against the dollar, he said.
There are "some uncertainties" at the moment on the outlook for eurozone prices in the short-run. The euro's exchange rate and oil prices have been "subject to some volatility in recent months," he said.
Moreover, harmonised consumer prices (HICP) "may be temporarily influenced by developments in meat prices and other factors such as increases in indirect taxes and administered prices." But Duisenberg repeated that the ECB can do nothing about such short-term price fluctuations but must focus on preventing second-round inflation effects to ensure medium-term price stability.
The continued rise in producer prices for consumer goods -- which have risen well above 2% y/y in recent months -- confirms the effects of this feed-through, he said.
"Taken together, these factors might prevent consumer price inflation from falling below 2% for some months to come," Duisenberg said.
Duisenberg reiterated that it was "essential" that eurozone member states continue to make progress on fiscal consolidation. He complained that current national budget programs are "not very ambitious and there is not enough restraint with regard to spending."
The ECB chief again urged additional structural reforms, saying "there is still amble room for further progress in this area."