European Central Bank policy makers signaled they may support raising interest rates in coming months as the economy recovers and imports fuel price pressures.
With inflation above the ECB’s 2 per cent ceiling and its benchmark rate at a record low of 1 per cent, officials must gauge whether the resulting liquidity situation “is still appropriate,” Executive Board member Lorenzo Bini Smaghi said in Hong Kong on Monday. “Clearly as the economy is better, maybe this assessment has to be revised.”
Separately, ECB council member Athanasios Orphanides told Dow Jones that inflation may stay above 2 per cent “somewhat longer than we expected before” and the bank “must be ready to act as appropriate to safeguard price stability.”
The ECB may be laying the groundwork for a shift in policy bias next week, when it is due to publish its latest inflation forecasts. Business confidence in Germany, Europe’s largest economy, surged to a record this month and expansion in the euro region’s service and manufacturing industries accelerated to the fastest pace in more than four years, reports showed on Monday.
ECB President Jean-Claude Trichet reiterated on February 19 in Paris that inflation risks could move to “the upside.” The bank may raise its key rate by a quarter-point to 1.25 per cent as soon as September, Eonia forward contracts show.
ECB Executive Board member Juergen Stark and council members Axel Weber and Mario Draghi are all due to speak at separate events later on Monday. Policy makers will next decide on interest rates at a meeting in Frankfurt on March 3.