The European Central Bank expects inflation will be back on target next year and sees no need to raise interest rates, a policymaker said on Thursday, but there were signs of growing concern over the euro's surge. European central bankers lined up to complain about the recent jump in the euro, described as "brutal" by ECB President Jean-Claude Trichet, but they showed no signs of backing their rhetoric with foreign exchange intervention. The euro hit a record high of $1.3005 on Wednesday, before edging slightly lower on Thursday on wariness that the ECB might be considering intervening to prevent a leap in the currency from undermining the zone's fragile economy. Officials stuck to the ECB's carefully-worded standard line on the euro that excess currency volatility was unwelcome and analysts said the euro move was not yet dramatic enough for intervention to be on the cards. There has been speculation the ECB might be considering raising rates because high oil prices have boosted inflation in the euro zone to 2.5 percent, above the ECB's 2.0 percent ceiling. But a day after U.S. rates rose, ECB Governing Council member Nicholas Garganas said there was no need for a euro zone increase if the central bank hit its inflation target, which he said it was on course to do by the end of next year.
"Right now there is no issue of an ECB rate hike," said Garganas, who is also Bank of Greece governor. "For as long as the inflation target (in the euro zone) is achieved, there is no reason to raise interest rates." Garganas added to the protests over the speed of the euro's gains but noted the ECB had no exchange rate target and said there could be some benefits from a strong currency. Fellow Governing Council member Nout Wellink said he too was more worried about sudden movements in the euro currency than its level. "I am always more concerned about volatility than the actual level of the euro. I am more concerned about the rate of change than where we end up," Wellink told on the sidelines of a conference in the Netherlands. "I cannot say that I am directly worried about this, but I will continue to follow it closely. If the rate change is too big, it creates insecurity among market players," said Wellink, who also heads the Dutch central bank. The euro has jumped more than 4 percent against the dollar in the past few months and was trading on Thursday around $1.2907 , about one cent below its record high set a day earlier. Analysts said it would take a move as high as $1.35 to $1.40 to prompt the ECB to start selling euros to cap the currency and that it would step up rhetorical heat before it reached those levels. Officials were choosing their words with care after confusion in currency markets on Wednesday when Italian Economy Minister Domenico Siniscalco appeared to suggest euro zone central banks were discussing possible intervention to cool the euro's rise against the dollar -- remarks his office later "clarified". The strength of the euro could help the ECB rein in inflation by helping to offset the rise in oil prices. An ECB survey of professional forecasters released on Thursday showed inflation expectations are unchanged despite costly oil. It showed on average they saw inflation at 2.1 percent this year and 1.9 percent in 2005. Oil prices stayed close to $49 a barrel on Thursday, down from the record peaks late last month on worries that supplies may not meet winter demand in the northern hemisphere. In Vienna Bundesbank Vice President Juergen Stark said the oil effect was difficult to assess. "The impact of higher oil prices might dampen growth. There might be a decrease in GDP on the one hand, and higher inflation on the other," he said.
He noted that the euro's strength is compensating for the cost of oil, which is denominated in dollars. Data on Thursday reinforced worries that European economies are beginning to feel the pinch from the strong euro. Figures showed German growth slowed to just 0.1 percent in the third quarter, the weakest rate since it shrank in the second quarter of 2003. In Berlin a senior backbench member of German Chancellor Gerhard Schroeder's Social Democrats urged the ECB to undertake coordinated intervention to lower the euro's exchange rate.
TALK NOT ENOUGH
"The euro's rise is presenting a growing threat to the economy," parliamentary group deputy leader Ludwig Stiegler said in a statement. "Talk alone is not enough any more: after verbal intervention the ECB should now massively and in a coordinated fashion sell euros for dollars." But in Vienna ECB Executive Board member Jose Manuel Gonzalez-Paramo stuck to the bank's standard formulation, also made by ECB President Trichet on Monday. "Sharp and sudden changes in exchange rates and excess volatility are undesirable. From the point of view of the ECB they are not welcome," Gonzalez-Paramo told a news conference. Trichet, speaking in the Italian city of Palermo, reiterated that he stood by his comments made on Monday. ECB Vice President Lucas Papademos on Thursday reiterated the ECB's stance that the central bank remained vigilant to both upside risks of inflationary pressures and downside risks to growth from rising oil prices. But he said underlying inflationary pressures were still contained.///