–Sees Pick-Up In Eurozone Inflation As Temporary

PARIS (MNI) – Eurozone governments should consider expanding the
mandate of the European Financial Stability Facility (EFSF) to include
purchasing sovereign bonds and advancing credit lines to countries under
pressure from financial markets, European Central Bank Governing Council
member Christian Noyer said in a newspaper interview published
Wednesday.

The governor of the Bank of France also predicted that the recent
pick-up in inflation would prove temporary, suggesting that the ECB is
in no hurry to hike interest rates.

Echoing appeals by ECB President Jean-Claude Trichet for a
quantitative and qualitative expansion of the E440 billion EFSF, Noyer
told the Wall Street Journal, “it is appropriate to think about
[enlarging the EFSF] even if there is no immediate need.”

Giving the EFSF the power to buy bonds in financial markets “would
probably be an interesting feature in some cases, if only to facilitate
access to the market” for high-debt governments, he said.

“Another possibility would be that of precautionary programs [such
as credit lines], like what the IMF is doing,” he said.

Noyer urged governments to ensure that the EFSF be able to use its
full lending capacity. Due to strict collateral rules and other
restrictions, little more than half of the fund can actually be lent.

Responding to concerns that expanded use of the fund might reduce
pressure for fiscal discipline, Noyer said governments “can probably
find answers to that.”

The acceleration in Eurozone inflation to a two-year high of 2.2%
in December has been due mainly to costlier energy and food, Noyer
observed. “Core inflation has remained relatively subdued,” he said. “By
nature, [the rise in overall inflation] should be temporary.”

Suggesting that the tough anti-inflation rhetoric Trichet adopted
at the ECB’s press conference two weeks ago might suffice to keep wages
and prices in check, Noyer said, “I am quite confident that we will be
able to keep inflation at bay,” in part by “sending the message that we
will never tolerate that inflation could become entrenched.”

“I am not signaling that we are going to raise interest rates,” he
added.

–Paris newsroom +331 4271 5540; e-mail paris@marketnews.com

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