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Strategies & Market Trends : The coming US dollar crisis

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From: RJA_	10/12/2007 12:29:49 AM
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ECB's Weber Says Interest Rates May Need to Become Restrictive By Gabi Thesing Oct. 11 (Bloomberg) -- European Central Bank governing council member Axel Weber said the bank may need to raise interest rates to a level that restricts economic growth to keep inflation under control. ``If risks to price stability are threatening to materialize, monetary policy can't lose sight of its primary mandate -- even if that means no longer supporting the robust economy or becoming restrictive,'' Weber, who also heads Germany's Bundesbank, said in the text of a speech in Munich today. There may be an ``additional need'' to raise interest rates, given the ``expected acceleration in euro-region inflation over the coming months.'' The ECB stepped back from plans to raise rates in September, saying it wanted to assess the economic impact of rising credit costs and financial-market turbulence caused by the U.S. housing slump. Signs of discord are starting to emerge among ECB policy makers on the best way forward for monetary policy, with Weber the strongest advocate for another rate increase. Council members Vitor Constancio of Portugal and Klaus Liebscher from Austria have noted that the euro's appreciation is helping contain prices on imported goods such as oil, while Ireland's John Hurley and Finland's Erkki Liikanen have stressed the need to gather more information before deciding what to do with interest rates. `Broad Front' While Weber acknowledged ``increased uncertainty,'' he said the ECB needs to remain focused on fighting inflation. ``Price increases are taking place on a broad front and are no longer limited to energy and volatile food prices,'' he said. Inflation accelerated beyond the ECB's 2 percent limit for the first time in over a year in September. The bank expects the rate to remain ``significantly'' above 2 percent into next year. The ECB left its key interest rate at 4 percent last week and dropped a phrase used in previous months that its monetary policy ``is still on the accommodative side,'' suggesting the bank no longer considers interest rates are boosting economic growth. Weber said the economic outlook ``continues to be favorable overall for the euro region'' and the ECB's main scenario for ongoing expansion ``remains valid.'' In September the ECB forecast economic growth of about 2.5 percent this year and 2.3 percent next year after 2.8 percent in 2006, which was the fastest expansion since 2000. To contact the reporters on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.net . bloomberg.com

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