ECB executive Bini Smaghi issues inflation warning

27th January 2011, Comments 0 comments

European Central Bank executive board member Lorenzo Bini Smaghi issued a warning Thursday that the ECB is closely tracking inflation and would raise interest rates if necessary despite the debt crisis.

At the end of an economic crisis that has reduced potential growth, "if monetary policy remains accommodative for too long and does not adjust in advance, it risks being late and not countering inflationary pressures in time," Bini Smaghi said in an address given in Bologna, Italy.

His speech was also posted on the ECB website.

"If this delay materialises, the central bank then has to raise interest rates to a greater extent, with potentially recessionary effects," he added.

ECB president Jean-Claude Trichet said earlier this month that the bank's governing council was keeping a close eye on inflation, which has breached its target of just below 2.0 percent with a reading of 2.2 percent in December.

Trichet's comments jolted financial markets which do not expect the ECB to raise its benchmark interest rate from the current record low level of 1.0 percent for several more months.

Bini Smaghi's comments came as the 17-nation eurozone grapples with a debt crisis that has rocked Greece and Ireland and could next target Portugal.

Bini Smaghi noted that the fight against inflation was especially important in developed economies because it could quickly be relayed into higher wages, which hurt the competitive position of a country or region.

That is the delicate situation many countries on the eurozone periphery find themselves in now.

© 2011 AFP

0 Comments To This Article