Amigo11
/ 2008-03-14 16:17
/
SAMA PRAWDA
Klaus Liebscher, a member of the European Central Bank's governing council, said Friday that the depreciation in the U.S. dollar exchange rate has been "dramatic" and the high degree volatility is a concern.
"What we have seen is a dramatic, or substantial weakening of the U.S. dollar," Liebscher said.
The dollar hit a fresh all-time low versus the euro earlier Friday, pushing the European currency as high as $1.5652. The greenback on Thursday also dropped below the 100-yen level against the Japanese currency for the first time in roughly 12 years.
"I am very concerned about the recent volatility in foreign exchange markets, which has to be regarded as excessive," said Liebscher, who also heads the Austrian central bank.
Commenting on the ECB's March 6 decision to keep the key policy rate steady at 4%, Liebscher said: "It is very clear that there was no discussion about lowering interest rates" and "it is also very clear that we do not subscribe to market expectations about future interest rates."
With euro-zone inflation still running high, most private-sector economists have pushed back their expectations for an interest rate cut in the euro zone following the ECB's latest policy meeting. But the majority still see two rate reductions of 25-basis points each by year-end. That would bring the ECB's key policy rate down to 3.5%.
"The moderation of economic growth in the euro area won't necessarily reduce inflation pressures," Liebscher cautioned.
The European Union statistics agency Eurostat earlier Friday revised up the annual rate of euro zone consumer price inflation for February to 3.3% from a previous estimate of 3.2%.
"We are very concerned about inflation," the governor said, adding that the "revisions (by ECB staff) clearly show that there are quite strong upward pressures to price stability" stemming from rising prices for commodities, energy and food, among other things.
"We will do what is necessary to fulfill our mandate that is to maintain price stability," Liebscher said. The ECB aims to anchor inflation at just below 2% over the medium term.
Liebscher said that he broadly agrees with the latest projections from ECB economics staff that, according to private sector analysts, highlight the delicate path the ECB is having to tread.
Earlier in March, ECB staff significantly revised up their inflation forecasts for this year and next while, at the same time, lowering their expectations of economic activity in the 15-nation euro zone.
He said it was important that companies and labor unions keep down wage hikes to prevent future inflation spurts.
"If there are second-round effects then everything, of course, would look differently again," he said.
"The euro zone's economic environment remains sound, but we're on a moderating path," Liebscher said.
The central bank governor said that he isn't "so much concerned" about the slowdown in bank lending and it's potential impact on economic growth. The ECB's January bank-lending survey showed a significant tightening in euro-zone credit standards at the end of 2007.
"Of course, there's a certain slowdown in housing loans and consumer loans, but that shouldn't be interpreted too negatively," Liebscher said, adding: "We are far off a credit crunch, and far off a situation where activity slows down dramatically."
Turning to recent developments in the interbank money markets, Liebscher said that the liquidity injections jointly announced by the world's major central banks Tuesday "are an excellent signal to the market that there is a good relationship and excellent cooperation between the world's leading central banks."
"But one cannot shift the responsibility of the current situation to the central banks," Liebscher said, noting that the ECB and other leading central banks had warned about the mispricing of risk long before financial market tension erupted.