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TALLINN - Inflation in the eurozone “is worrying” and the European Central Bank might raise interest rates in its next meeting in April, ECB Governing Council member Andres Lipstok was quoted as saying on March 24, reports Reuters. Lipstok, Estonia’s central bank chief, stressed the ECB’s role in dealing with inflation in remarks published in the Postimees daily, his first published comments since his country joined the euro on Jan. 1, and said the current rate may not be high enough to counter rising inflation in eurozone countries.
“Global price rise pressures have been annoyingly enduring and do not show any signs of abatement,” Lipstok said. “The risk of a persistently higher inflation rate in the euro area has increased.”
To counter high inflation, he said the ECB might increase interest rates next month, but he stressed the final decision would be made at the April 7 meeting. “The Governing Council... will not commit to future decisions in a form that would render the council a prisoner of their own words,” Lipstok was quoted as saying.
But he made clear there were problems with keeping rates at the current level. “The current euro area interest rate level is not suitable for guaranteeing the low inflation rate that corresponds to the price stability goal,” Lipstok said.
He added, however, that if commodity price rises cease, eurozone inflation could dip back below 2 percent next year. The ECB targets inflation of below, but close to two percent.
ECB President Jean-Claude Trichet shocked markets in early March by saying the bank could raise rates as early as April, and he made clear on March 21 that this message was still valid, even after Japan’s devastating earthquake, tsunami and nuclear disasters. Several ECB colleagues have also signaled a rate increase in recent days, including Lorenzo Bini Smaghi and Jozef Makuch.
Lipstok said the sovereign debt crisis would not stop the ECB raising rates either, since debt servicing costs of troubled countries are influenced by their fiscal policies more than by policy interest rates. “Monetary policy will not be imprisoned by it,” he said.
The central bank chief also said the money market situation was not risk-free yet, and added the ECB’s policy of providing banks with as much cash as they want was not harming the system. “Extraordinary instruments in the market do not mean that the money market environment is too lenient,” Lipstok said, and added the measures would be removed as soon as they become “unnecessary.”