13 June 2001, 11:09 ECB's Issing says inflationary risks again tend to be on the upside
FRANKFURT (AFX) - European Central Bank chief economist Otmar
Issing said inflationary risks are again tending to be "on the upside",
while risks in economic growth are more on the downside.
Speaking to reporters last night, Issing said: "risks are divided
in such a way that on growth, it is more on the downside and on
inflationary developments, it is more again on the upside."
He stressed wage increases will play a major factor in domestic
inflation.
"If no disturbances occur, we expect that the inflation rate will
gradually come down in the second half. In the course of 2002, it will
fall below 2 pct," he said.
He said based on the ECB's two-pillar strategy, the second pillar
-- which analyses a series of economic indicators -- has developed
"less favourably" and that one can expect a "slight reduction of risks
to price stability and nothing more than that."
"This is why we think that for the time being our monetary policy
is appropriate," he said.
Issing said the ECB trimmed interest rates on May 10 because
inflationary risks were lower and that monetary growth as well as
credit developments have slowed down.
"We have cut the interest rate and we believed that our monetary
policy has really been appropriate," he said, adding: "The way things
stand for the moment, we think they are right."
He said an inflation rate of 2.9 pct -- which was the euro area
April HICP rate -- is "too high", not only because it is above the
ECB's reference rate of 2 pct but that a figure close to 3 pct would
present difficulties in terms of controlling the second round effects.
Although the second pillar analysis forecast a slightly lower
inflation in one or two years, this should not be seen as an "all-clear
signal."
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