NEW YORK (Reuters) -
Europe’s central bank will take “all necessary measures” to stabilize prices, and banks and governments should see its recent exceptional measures as a “window of opportunity” to make improvements, ECB governing council member Christian Noyer said on Monday.
“First and foremost, we are providing price stability and will continue to take all necessary measures to fulfill this mandate,” Noyer, who is also governor of the Bank of France, said at a conference at the New York Stock Exchange.
“Moreover, our recent exceptional and temporary measures should be seen as a window of opportunity for banks to strengthen their balance sheets and for governments to step up their efforts in a less troubled financial environment.”
German Bundesbank head and ECB governing council member Jens Weidmann, speaking at a separate event in New York, also discussed the importance of this mandate, saying monetary policy must not lose sight of its primary objective to maintain price stability in the euro area.
“Monetary policymakers must do what is necessary once upside risks for euro-area inflation increase,” Weidmann said.
“Delivering on its primary goal of maintaining price stability is essential for safeguarding the most precious resource a central bank can command: credibility.”
Weidmann said delaying budget cuts will hurt, not improve, economic growth, as such a move would hit confidence in the euro zone ever getting a handle on public debt.
The ECB held rates at a record low of 1 percent earlier this month, and pumped over 1 trillion euros into the financial system with twin 3-year funding operations, or LTROs, to stave off a credit crunch late last year.
Hard-liners at the ECB are concerned that the move could fuel inflation pressures.
Noyer said the positive effects from the LTROs have already materialized.
“It is too early to assess the extent to which these measures will ‘trickle down’ to the financing of the real economy,” he added at the Paris Europlace Financial Forum.
“But the fact that more banks participated in the second operation...indicates that the money is now closer to small- and medium-sized enterprises than it was before.”
Over the weekend, top ECB policymakers attending the International Monetary Fund’s spring meetings rebuffed the IMF’s call for the bank to cut its policy interest rate below 1 percent and be prepared to provide more public funding to banks to reduce the risk of a new flare-up of the crisis.
Weidmann said the ECB will raise interest rates when there is a growing risk of prices rising faster than its target, and warned that employing too loose a policy now would increase risks to financial and price stability in the future.
Moreover, the Bundesbanker expressed worries that prices might rise faster in developed countries than the 1.9 percent this year and 1.7 percent for next that the IMF forecasts. The ECB aims to keep inflation just below 2 percent.
“I am not quite as calm about inflation (as the IMF). Taking into account rising energy prices and robust core inflation, prices could rise faster than the IMF expects,” Weidmann said.
Short-term euro zone interest rates are, however, pricing in a rising chance that the ECB may ease monetary policy further later this year as the sovereign debt crisis intensifies and the economic outlook worsens.
Surveys showed on Monday the euro zone’s private sector slump deepened at a faster than expected pace in April, dampening hopes that the bloc may come out of recession any time soon.
Reporting By Jonathan Spicer and Leah Schnurr, additional writing by Sakari Suoninen; Editing by Chizu Nomiyama