FRANKFURT (AFX) - Bundesbank president Ernst Welteke, stressing there was need for a central bank's independence, said the European Central Bank's decision to cut interest rates was made "independent" of opinions expressed by politicians.
Welteke said in a speech before members of the opposition CDU Christian Democratic party that the ECB's decision to cut key interest rates by 25 basis points "was made independent of opinions and suggestions from financial politicians or market participants". "The independence of monetary policy institutions is a precondition for its orientation to stability," he added.
He said the "temptation" by some quarters to express opinions on monetary policy issues could be due to the fact that the unified European monetary policy demands adjustments from other political fields.
He said before the euro was launched, the exchange rate and interest rates were instruments used by national politics to ward off economic "shocks" and to solve economic problems.
But under the unified currency, "the reaction capabilities of national politics is limited...," he added.
Welteke said monetary policy has its limits and noted that in the case of Europe, the aim of monetary policy from the very beginning when the euro was launched was "limited consciously to price stability". "It has a supporting role for economic policies provided the aim of price stability is not impaired," he added.
He said the difference in these goals of monetary policy has lately been ignored by "some commentators".
The European Central Bank has a different function, he said, unlike the U.S. Federal Reserve, which pursues several goals including economic growth, higher employment, price stability and moderate long-term interest rates.
"But for the euro area, economic fluctuations alone cannot be the sole yardstick for monetary policy action. The goal alone is to secure price stability, which we have set to be a medium term price increase of below 2 pct," he added.
Welteke said the ECB follows a two-pillar strategy based on money supply data and economic indicators.
He said if distortions in the money supply data were taken out, then "the first pillar of monetary policy shows price risks no longer exist".
He said the second pillar also showed price pressure is decreasing. "The economic outlook for the euro area has deteriorated due to external economic factors," he added.