–Adds detail on bank lending

FRANKFURT (MNI) – A moderate growth outlook in the Eurozone and
still-low medium-term inflation expectations make the European Central
Bank’s current official interest rates appropriate, ECB Governing
Council member Axel Weber said Wednesday.

The inflation outlook remains moderate even though there are upside
risks in comparison with [the ECB's] March forecasts, the president of
the Bundesbank said in remarks prepared for a banking conference in
Berlin.

Weber assured that the EMU itself is not in danger from the Greek
crisis “and we will take care that it stays that way.” Moreover, the
crisis teaches us that not only financial market regulation but also
adjustments in the framework of fiscal policy are necessary to avoid the
crisis from being repeated.

The current level of interest rates is “still appropriate” with
moderate growth anticipated and inflation risks still low, Weber said.
He noted, however, that compared with the ECB’s last forecasts in March,
inflation risks are now pointing upward.

The ECB is “on a good path” for returning to the allotment
mechanism of refinancing that was “usual before the crisis,” he said.

“EMU itself in not endangered by the Greek [government's] petition
for aid,” he insisted.

The further withdrawal of the bank’s non-conventional liquidity
measures will be gradual and dependent on financial market conditions,
Weber said.

At the beginning of the first quarter there was likely a
stabilization in bank lending in Germany, but it “would still be
premature to speak of a definite turnaround in lending,” Weber said.

He underlined that credit developments in Germany are in line with
usual cyclical developments.

“All in all there are at present few indications of a broad credit
crunch in Germany” nor can a “massive” supply-side hindrance to credit
be expected in the future on the German credit market, he said.

“Such a risk scenario is, however, not completely ruled out,” he
cautioned.

Weber also warned that the impact of the crisis may not be fully
reflected in credit volumes yet.

He also emphasized that the German recovery process is
fundamentally “in tact.”

–Frankfurt Newsroom, +49-69-720-142; frankfurt@marketnews.com

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