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.
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