Weber Sees No Room for Rate Cuts as Inflation Soars
European Central Bank council member Axel Weber said he doesn't see any scope to cut interest rates with inflation running at the fastest pace in almost 16 years.
“I've said before that I don't see any room to cut rates given the current environment,'' Weber, who heads Germany's Bundesbank, said at a press briefing in Washington today. At the same time, Weber said there's no immediate need for the ECB to raise borrowing costs.
The Frankfurt-based central bank left its benchmark rate at a six-year high of 4 percent yesterday, even as a credit squeeze and the euro's appreciation threaten to deepen Europe's economic slowdown. Inflation accelerated to 3.5 percent in March and Weber said while it may have peaked, the rate won't fall significantly below 3 percent until the end of the year.
“I fear that current inflation rates will remain for most of the year,'' Weber said. “It's important that there aren't any new inflationary pressures. We won't tolerate broad price pressures.''
The International Monetary Fund said this week it expects euro-region inflation to slow to 1.9 percent in 2009 and that the ECB, which aims to keep the rate below 2 percent, can afford some monetary-policy easing.
“I don't share the IMF's estimate that inflation will be as modest, and that's why I don't see room to cut interest rates,'' said Weber, who's attending the Group of Seven meeting of finance ministers and central bankers in Washington this weekend pay day advance instant payday loan.
`Pessimistic' IMF
Weber is one of the toughest inflation fighters on the ECB's 21-member Governing Council. His Portuguese colleague Vitor Constancio said in Lisbon today that slower economic growth may help to damp inflation pressures.
Still, Constancio agreed with Weber that the IMF's forecasts for growth in Europe are too pessimistic. “Growth in 2008 will tend to be a little higher than the IMF forecast,'' he said.
Germany “had a good first quarter,'' Weber said. While there will be some slowdown, “figures won't be bad this year. I don't share the IMF's pessimistic view on Germany and the euro region.''
The IMF cut its prediction for economic expansion in Europe this year to 1.4 percent from 1.6 percent as the U.S. housing slump pushes up credit costs worldwide.
Banks and securities firms have so far posted $245 billion in asset writedowns and credit losses in what the IMF described as the worst financial crisis in the U.S. “since the Great Depression.''
Weber said Europe can't expect to decouple from the U.S. “However, the impact of the U.S. slowdown may not be as strong as previously,'' he said.
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