21 December 2001, 12:53  Noyer says ECB focusing on future inflation risk, not current inflation-UPDATE

PARIS (AFX) - The European Central Bank focuses on risks of future inflation rather than the current inflation rate when it takes decisions on interest rates, ECB vice-president Christian Noyer said. "Monetary policy decisions only have an effect with a lag of around 18-24 months. So it is not the current inflation rate that is important, but the outlook for price developments and threats to price stability," Noyer said in an interview with French daily L'Agefi. Euro zone inflation has declined to 2.1 pct in November from a peak of 3.4 pct in May and is expected to drop below the ECB's 2 pct price stability ceiling early next year, prompting many economists to forecast a further cut in interest rates in the first quarter. But Noyer reiterated that the ECB sees current interest rates as appropriate to ensure price stability. "It seems that the refi rate is adequate to guarantee an increase in prices over the medium term which is in line with our definition of price stability," he said. Noyer said the ECB takes account of market expectations for inflation by looking at bonds and the yield curve, alongside other factors which have a bearing on future inflation, such as wages, the euro's exchange rate and government budget positions. He said recent strong growth in M3 money supply does not carry inflation risks because it is mainly the result of portfolio shifts. Noyer said that rates are appropriate "by definition" after each rate setting ECB council meeting. "Otherwise they would have been changed," he said. New information may become available between meetings but this will normally only lead to a reconsideration of monetary policy at the following meeting, he said. "In our collegiate structure, it is only at the following governing council meeting at which rates are to be discussed that a new analysis will be made," he said. And markets should only listen to comments on monetary policy by the 18 governing council members, rather than other central bankers such as the German regional central bank governors, who are not on the ECB council, he said. "It is the governing council members who take decisions. So people should listen to them, and particularly to the president (Wim Duisenberg)," he said. Noyer said euro zone finance ministers are entitled to give their views on monetary policy but that the ECB acts in complete independence. "I don't think I've ever seen finance ministers calling for central banks to raise rates. It is true that they more often call for rate cuts. That is their right, but they would doubtless be wise to exercise it with moderation," he said.

© 1999-2024 Forex EuroClub
All rights reserved