COLOGNE,Oct 8: Current upside risks to price stability are a temporary phenomenon linked to surging oil prices and the European Central Bank has no need to raise borrowing costs, Germany’s Economy Minister said on Saturday.
I am convinced current inflation risks are a temporary occurrence and purely the result of high oil and energy prices and therefore no reason in itself for tightening the monetary policy reins, Economy Minister Wolfgang Clement said in the text of a speech at a food trade fair in Cologne.
I expect the ECB to consider and keep fully in mind the difficult growth situation in Europe in any decisions they make on changing their key interest rate, he added.
Clement’s message to the ECB comes after the Frankfurt-based central bank this week toughened its anti-inflation rhetoric, saying strong vigilance was required and it stood ready to raise rates should the situation deteriorate.
ECB President Jean-Claude Trichet said the bank’s governing council discussed tightening borrowing costs at a meeting on Thursday in Athens but decided that the current two per cent per cent level of its key lending rate was appropriate for now.
Investors have placed strong bets in the futures market on an ECB rate increase by March.
After tumbling on Friday, prices on Euribor futures which reflect euro zone interest rate expectations, indicated the market assigned about a 75 per cent probability to a quarter-point rise by then.
The December 2005 Euribor future now prices in about a 30 per cent chance of a hike by the end of the year.
Clement said in the text of his speech the prospects for an acceleration in German economic growth were “very good” and “almost all indicators” pointed to this.
Even though the volume of manufacturing orders shrank slightly in August, the trend is clearly pointing upwards, Clement said, adding that it was particularly pleasing that there were signs of a pick-up in domestic demand.
And despite the risks to growth from high oil prices, we still expect strong impulses from abroad to continue, he said. —Reuters
