FRANKFURT (MNI) – European Central Bank Executive Board member
Juergen Stark said that he sees the risk of second round inflation
effects and added that, while inflation expectations remain anchored,
uncertainty has increased.

Speaking with Japanese publication Nikkei, Stark also said that
“conditions are there and there are good reasons to normalise the
monetary policy stance”, when asked about a possible rate increase next
month.

“But I think that given the heightened uncertainty I cannot make
any commitment for the ECB nor for the Governing Council,” Stark said.
“And the ECB did not commit to anything.”

However, the central banker noted that the ECB’s staff projections
took into account market expectations of a rate increase. Stark also
highlighted the correct perception that the central bank was more
concerned regarding the inflation outlook.

“But we did not change our communication in February. And this was
misinterpreted by some market participants,” he said.

Stark warned that it was up to a central bank to prevent the risks
of second-round inflation effects from materializing, and noted that
monetary policies, both in advanced and emerging economies, were
“accommodative”.

Inflation expectations remain anchored, but “information can change
and judgment can change,” Stark said.

“But for me, the situation in the euro area, with the ongoing
economic growth and ongoing threat to price stability, in the short term
has not changed,” the central banker said. “However, the uncertainty has
increased, in particular due to the events in Japan and due to the
geopolitical situation in other regions.”

Regarding the ECB’s non-standard measures, including the full
allotment liquidity providing measures, Stark stressed that they were
temporary and were in the process of being phased out.

“Banks are less dependent [on] our operations and this is a clear
sign of normalisation in the inter-bank market,” Stark said.

Turning to the ECB’s Securities Market Programme, Stark highlighted
that this was also temporary.

“I cannot give any indication how long this instrument will be in
place, but I can assure you, this will not be a permanent instrument,”
Stark said. “Compared to the situation from May last year, when this
instrument was established, the interventions have significantly
declined.”

The purchasing of government bonds “is a temporary measure and it
will be phased out as quickly as possible, when the conditions are in
place,” he insisted.

Stark was also questioned on the recent announcement that the Group
of Seven would intervene in FX markets to prevent excessive appreciation
of the yen, and could do so again if Japan requested it.

“The G7 finance ministers and central banks expressed their
readiness to provide any needed cooperation, and the confidence in the
resilience of the Japanese economy and the financial sector,” Stark
said. “G7 stands ready to provide any support needed.”

— Frankfurt bureau: +49 69 720 142; email: frankfurt@marketnews.com —

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