PARIS (MNI) – The European Central Bank could hike interest rates
before removing all of its crisis-induced liquidity measures, but there
is no inflation pressure at the moment, ECB Executive Board member Jose
Manuel Gonzalez-Paramo said in a newspaper interview published Thursday.

“It is perfectly possible, if we see signs or upward risks to price
stability, to move interest rates before withdrawing all the
extraordinary measures,” Gonzalez-Paramo told the Spanish business daily
Expansion. “It is a possibility that does not take much to imagine,
because conceptually it is possible and there is no technical obstacle
to doing it.”

Paramo noted market surveys indicating that analysts expect a rate
rise by the ECB next year. “As is well known, we move rates as a
function of what the upward risks to price stability are and, for the
moment, we think there is no pressure of this type. What happens in the
coming months and quarters, we will see.”

He acknowledged that in the market, excess liquidity “has been
diminishing in a very significant way” and that has put upward pressure
on short-term rates, which is also felt in the longer-term references.

Asked about the impact of the Federal Reserve’s new monetary easing
decision on the euro and on Eurozone exporters, Paramo said it would not
be “responsible on our part to talk about currencies now.” He noted that
exports don’t only depend on exchange rates but on many other factors.
“We have sufficient proof that in Europe, with a strong currency, we
continue to export.”

Gonzalez=Paramo added that, “we believe absolutely in the
declarations by [U.S.] Treasury Secretary [Timothy Geithner] that a
strong dollar benefits his economy.” And he underscored the G20
communique that said competitive devaluations “are not good” and which
“at the same time reminds us that exchange rate flexibility is a
fundamental element of the stability for the international monetary
system.” He added that it would be “very positive” were this concept to
be applied “in those areas where the exchange rate is not flexible…and
its movement not determined by the market.”

He declined to comment on the Fed’s quantitative easing per se. He
acknowledged that any decision taken by the U.S. is going to have a
global impact, “but there is no mechanical link,” he added. And in any
case, “everyone understands that we have our mandate, which is
different.”

–Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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