31 October 2001, 12:55  ECB's Noyer says rate changes depend on inflation

MILAN, Oct 31 - European Central Bank Vice President Christian Noyer was quoted on Wednesday as saying the ECB would consider adjusting interest rates if the inflation outlook changed but it wants to make sure that price stability is not undermined. "The ECB will continue to monitor the economic picture and if necessary will modify interest rates when and if it has new elements regarding the eurozone as a whole which would change opinions about the inflation outlook," Noyer told Italian newspaper Il Sole 24 Ore in an interview. "We want to be sure that price stability is not undermined by a precipitous reduction in the cost of money. That would harm the credibility of monetary policy," Noyer said in the interview with the business newspaper conducted in Frankfurt. The daily quoted Noyer as urging European governments to stick to their medium-term budget objectives irrespective of any short-term variations in their accounts. "The fundamental idea for the ECB is that it would be dangerous for member states to call into question the improvement in public accounts in the medium term, beyond variations in accounts over the course of a year," he said. "That would be harmful not only to the countries themselves but also to economic players, businesses and families." Noyer added he was fundamentally optimistic about the euro zone's economic outlook. "The fundamentals are sound and there are no significant imbalances, for example, between savings and investments," he said. "Nor is there any overcapacity in the eurozone's manufacturing sector that might require a long process of readjustment." Noyer said the possibility of a global economic recession was slight. He cited the room for fiscal manoeuvre in the United States and countercyclical factors such as the drop in oil prices. Turning to "automatic stabilisers", Noyer said the goal of reducing the euro zone's structural deficit over the medium-term was fundamental. Automatic stabilisers allow budget deficits to widen at a time of economic slowdown because of lower budget revenues but without additional spending. "I believe the medium-term strategy is more important than meticulous calculation of the variations that stem from automatic stabilisers," he said. "What is really fundamental is to keep to a strategy that leads to an improvement of the structural deficit over the medium term."

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