ECB May Have to Raise Rates to Contain Inflation, Weber Says

Discussion in 'Economics' started by ASusilovic, Oct 21, 2007.

  1. European Central Bank governing council member Axel Weber said the bank may have to raise interest rates further to quell inflation and that the euro-region's economy does not need support from borrowing costs.

    ``I don't believe that interest rates have to support the economy, which is currently growing at 2.5 percent,'' Weber said in an interview in Washington D.C. yesterday. ``Inflation risks have increased recently,'' and the bank will ``have to counter these risks should they materialize.''

    Weber said there's a ``reasonable probability that inflation may end up above 2 percent in 2008 and possibly in 2009,'' and ``that is reason enough to examine closely if there is a need to adjust'' interest rates. The bank aims to keep inflation just below 2 percent.

    The ECB left its benchmark rate at 4 percent on Oct. 4 after shelving a planned increase in September to assess how the U.S. housing slump and rising credit costs will affect the economy. At the same time, inflation breached the 2 percent limit for the first time in more than a year last month and oil prices have soared 75.5 percent since mid-January, passing a record $90 a barrel on Oct. 19.

    According to Weber, oil costs are likely to ``retreat'' as the recent surge was driven by geopolitical tensions. However, ``futures markets show that over the medium to long term the oil price will hover somewhere between $70 and $80 dollars a barrel. These are still elevated levels and above what we had based our projections on.'

    No mercy for USD ! Ha, ha, ha...:p