ECB's Duisenberg Sees 'Inclination' for Higher Rates
Frankfurt, Oct. 31 (Bloomberg) -- The European Central Bank's policymakers are more inclined to raise interest rate as money supply growth quickens, ECB President Wim Duisenberg said, bolstering expectations of a rate increase this week.
''Our inclination for higher interest rates has certainly risen somewhat'' since July, Duisenberg told business daily Handelsblatt in Monday's edition. ''I don't know what the ECB council will decide on Nov. 4, but I can imagine.''
Duisenberg's comments underpin expectations the ECB, which sets rates for the 11 countries sharing the euro, will lift borrowing costs for the first time in its ten-month existence this Thursday. While inflation in the region remains subdued, economic growth is picking up and the ECB's benchmark interest rate is at an all-time low of 2.5 percent.
At its meeting in early October ECB officials were unanimous that the next rate move would be an increase, though weren't sure whether to lift borrowing costs later this year or early next year, Duisenberg said. The bank wanted to wait for ''more evidence that price stability is in danger in the medium-term,'' he told Handelsblatt.
M3 money supply growth, the ECB's main guide to future inflation, rose to an annual rate of 6.1 percent in September from 5.7 percent in August and above the ECB's target of 4.5 percent. That growth added to talk the central bank could raise its benchmark 2.5 percent refinancing rate as soon as this week.
''The latest development in money supply without doubt confirms the trend, even if we don't base our judgment solely on this,'' Duisenberg said.
A survey of 55 economists, traders and investors conducted after the release of the money supply figures found that all but six forecast a rate increase on Nov. 4. An increase would be the first for the 10-month old ECB and the first in benchmark European borrowing costs since the Bundesbank raised rates Oct. 9, 1997, prompting other central banks to follow.
''If we make a rate decision, then we've influenced the markets accordingly and the more so, the closer the decision approaches,'' Duisenberg said.
His comments come after the ECB's chief economist Otmar Issing told reporters on Friday the outlook for faster economic growth in the euro zone has improved, and indicated that the reasons for the bank's rate cut earlier this year no longer exist. The reasons for that rate reduction ''have now disappeared,'' Issing said.
Oct/31/1999 16:05 |
