FRANKFURT (AFX) - European Central Bank president Wim Duisenberg said the current levels of interest rates are appropriate to bring euro zone inflation below the ECB's stability ceiling of 2 pct in the medium term.
Speaking at the ECB's news conference Duisenberg said: "It (the governing council) considers that the current monetary policy stance remains appropriate and should bring inflation back in line with price stability over the medium term."
He added maintaining price stability is the "best contribution" the ECB can make to fostering economic growth in the long term. The bank had earlier left its main refinancing rate unchanged at 4.50 pct. Duisenberg said despite a strong rise in year-on-year M3 growth in May to 5.4 pct, monetary developments remain broadly in line with the ECB's reference value of 4.5 pct.
He said there is some evidence the M3 data, which are already adjusted for non-resident holdings of money market shares, are distorted upwards by non-resident holdings of money market paper and short term debt securities.
"Taking this into account the three month moving average of M3 in the period from March to May 2001 was broadly in line with the reference value", he said.
On price developments, Duisenberg said there still remains a risk of second-round effects from current high prices spilling over into wage negotiations this year and in 2002.
Although wage developments in the past have been satisfactory there is "ongoing concern" about the future, he said.
He said the current high rates of euro zone inflation are determined mainly by shocks from energy and food price hikes, which should only have a temporary effect on inflation rates.
"If no further unfavourable shocks occur it is likely that annual rates of inflation will start to fall and reach rates of below 2 pct in 2002, although the decrease from current levels ... may be subject to some volatility", he said.
Duisenberg said despite a likely moderation in growth in the second quarter this year, domestic demand is expected to pick up later on due to tax reforms and solid economic fundamentals. "Average real GDP growth is therefore expected to remain broadly in line with trend potential growth in 2001 and 2002", he said.