ECB rates can't stay low forever

Published August 15, 2004

BRUSSELS, Aug 14: The European Central Bank, while hardly likely to leave interest rates at current low levels for ever, has no current programme for raising them, ECB Governing Council member Guy Quaden was quoted as saying on Saturday.

"It is difficult to conceive that the (interest) rates would for ever stay at their current low levels. But that doesn't mean that the ECB has already programmed an increase of its rates," Quaden, who is also the central bank governor for Belgium, told Belgian financial daily L'Echo in an interview.

"In September and in the coming months, we will evaluate the perspectives in terms of inflation and growth based on the most fresh information," he added.

The ECB left interest rates unchanged at their historic 2.00 percent low for the 14th month in a row.

Quaden also said that recent studies show the European Central Bank becoming as transparent as the U.S. Federal Reserve in terms of the market being able to anticipate its interest rate policy decisions.

The US Federal Open Market Committee raised the key federal funds rate target by a quarter-percentage point to 1.25 percent at its June 29-30 meeting, and increased by the same amount at its most recent meeting on Tuesday.

"The question, put recently, would be rather to know whether it (the ECB) has not become too transparent," Quaden said.

"My opinion is that ... the central banks have to avoid, as far as possible, taking the markets by surprise," he added. "But they should not exclude that, if it's really necessary. The markets have to be aware of this and continue to develop their own evaluations of the inflation and growth perspectives," Quaden said.

He added the relative impact of oil prices on the European economy has decreased over the past 30 years and the strength of the euro is mitigating the impact of the current high cost of crude.

He said the effect of oil prices would only trigger a monetary response "if this external shock were to contaminate the whole of prices, particularly by increasing salaries".-Reuters

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