–BNB Comments From Forecast Report Released Wednesday

BRUSSELS (MNI) – The monetary policy of the European Central Bank
is decidedly accommodative and a quarter-point tightening move will not
prevent the economic recovery from continuing, ECB Governing Council
member Luc Coene said Wednesday.

Presenting the latest economic projections of the Belgian National
Bank, which he heads, Coene called forecasts for a continued recovery in
Belgium and Europe-wide “quite clear.”

“We do have a level of inflation that’s fairly high, above 2% for
almost the entire year of 2011,” he continued. With official short-term
rates currently at a nominal 1.25%, their real level is thus negative,
he noted.

“So monetary policy is really quite loose,” Coene said. Moreover,
the fact that growth rates of most European economies presently exceed
potential growth “is an indication of accommodation” as well, he argued.
“This [accommodation] has to be reduced and this is what the ECB is
doing.”

As for troubled member states on the periphery of the Eurozone,
Coene observed that the ECB has preserved all its non-standard measures
to provide liquidity, “and so this does give an indication that we are
trying to take account of the difficult situation in some of the
countries.”

In any case, he said, “we don’t feel that an increase of 25 basis
points is such as to stop the recovery that we are enjoying at this
time” in Europe.

Domestically, Coene criticized again the Belgian practice of
indexing wages and some prices, warning that this could lead to
second-round inflation effects in Belgium.

Indexation and the failure so far of Belgium to consolidate public
finances “give food for thought whether growth will continue as
positively” here, he said.

Coene declined to comment on Greece, noting that the BNB will be
presenting its latest financial stability report tomorrow, “and this is
really the context” in which to talk about Greece, he said.

The BNB itself, in remarks released with its economic projections,
also said that the ECB’s main refi rate remains “low,” and added with
respect to the global outlook that “if the consolidation of the rising
phase of the business cycle continued, monetary policies would have to
continue to become less accommodative over the coming months.”

In the Eurozone, economic prospects are positive “in spite of the
elevated degree of uncertainties,” the BNB said.

“While continuing to benefit from sustained external demand —
although exports will be a bit dampened by the effects of the recent
appreciation of the euro — activity will be based more and more on
internal demand,” it predicted.

Strong labor market developments and increased investment will
support this trend, it predicted.

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

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