By David Barwick

Alpbach, Austria (MNI) – A double-dip recession in the Eurozone is
not on the horizon but excessive optimism is not warranted, European
Central Bank Governing Council member Ewald Nowotny told Market News
International late Thursday.

Speaking shortly before a dinner here, Nowotny expressed
satisfaction with recent exchange rate movements of the euro, and also
expressed his confidence in the policies of troubled peripheral
countries, including Greece, Ireland and Spain.

While economic growth in the Eurozone will be stronger than
expected this year, driven by Germany, it is likely to decelerate in
2011, and the slowdown could carry over into 2012 as well, Nowotny
projected.

He made clear that the ECB’s exit from non-standard measures will
be in stages, and well thought out. The bond buying program, which he
called a “clear success,” should remain in place for now even if the
volume of purchases is small, he argued.

Nowotny made clear that with no inflation threat on the horizon and
growth still “pretty weak,” monetary policy will be on hold for a long
time.

Contained inflationary pressures are “the key” in making monetary
policy decisions, Nowotny said, though he argued that interest rates
cannot remain as low as they currently over the long term. “Of course
one has to be aware that an interest rate which is as low as the one
that we have now is an extraordinary situation, so in the long run this
cannot be seen as an equilibrium rate,” he said.

“But we have to observe very carefully the economic constellation
both with regard to price stability and with regard to long-term
economic perspectives, and for the time being, as we see now, there is
nothing in sight that could cause us to increase interest rates.”

The ECB is not trying to send any monetary policy signal other than
that “we see interest rates as appropriate,” Nowotny added. “Of course
we also emphasize that we never pre-commit, but for the time being, we
don’t see any specific signs for interest rate changes.”

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–David Barwick, +00-49-173-315-6588; dbarwick@marketnews.com

[TOPICS: M$$EC$,MX$$$$,MT$$$$,M$X$$$,M$$CR$,MGX$$$]