FRANKFURT (MNI) – The European Central Bank is ready to tighten
monetary policy further if economic and monetary developments indicate
that such a move is warranted, Executive Board member Juergen Stark said
in an interview released Wednesday.

Stark told Greek newspaper Kathimerini that monetary authorities
must see whether the current inflation uptick is a transitory occurrence
or becomes embedded via second-round effects.

Asked straight out whether the ECB is ready to raise rates again if
needed, Stark replied, “If needed, depending on the economic and
monetary developments, and taking both elements together on the price
outlook.”

“We are not reacting mechanically, we are not backward looking but
forward looking, and medium-term oriented,” he said. “With this stronger
than expected growth, and also given that consumer and investor
confidence is at relatively high levels, we assume that the underlying
momentum of the economic growth will continue. So for this reason there
is less need for fiscal and monetary policy accommodation.”

The upside growth surprise in the euro area in 1Q was “good news,”
as was the “broad-based and more sustainable” nature of the expansion,
driven as it was by both exports and domestic demand, he said.

“However,” Stark continued, “uncertainty is high, in particular due
to the situation in some periphery countries like Greece, Portugal and
Ireland. We also have to consider the medium term impact of high oil
prices and commodity prices on economic activity and on inflation.”

The commodity-fueled surge in inflation must be monitored by the
central bank “to see if it is a temporary phenomenon, or whether in
price setting or wage setting there is a risk of second round effects,
and whether the higher inflation rate could become more persistent,” he
said.

“We have to prevent this kind of second round effects,” he added.
“This is one of the reasons we raised rates in early April.”

Stark reiterated the ECB’s unwillingness to set monetary policy for
anything but the Eurozone as a whole

–Frankfurt bureau tel.: +49-69-720142. Email: dbarwick@marketnews.com

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