The European Central Bank (ECB) has delayed but not dropped plans to raise interest rates on the back of robust euro-zone growth. However, financial market turmoil may make it more circumspect in signalling its intentions, a leading member of its governing council said yesterday.
Axel Weber, Germany's Bundesbank president, warned "robust, broad-based growth" posed inflation risks, while the uncertainty that persuaded the ECB to hold its main interest rate at 4 per cent this week had been confined to financial markets and exacerbated by people being on holiday.
His comments highlighted ECB optimism that the euro zone can ride out the financial market turmoil. The ECB was injecting liquidity and would try to ensure the period of uncertainty was "as short as possible", Mr Weber told journalists at an "ECB watchers'" conference in Frankfurt.
On higher interest rates, he said: "Postponed is not abandoned." The Bundesbank president argued that financial markets might have to get used to fewer clues on the timing of ECB moves, however. Amid heightened uncertainty, "maybe you want to be more cautious about outlining the way forward", he said in his speech.
He also revealed tension within the ECB over the use of code words. Jean-Claude Trichet, ECB president, said after Thursday's interest rate-setting meeting that he might use the phrase "strong vigilance" again - signalling a rise was likely in a month's time - even though he had had to backtrack after saying it in August. Mr Weber reported yesterday "differing degrees of enthusiasm regarding the use of code words".
Meanwhile, the ECB earned plaudits for its handling of the crisis. "The agility and flexibility of the ECB has been impressive.
"Mr Trichet has appreciated he has a mandate to maintain the smooth operating of the markets," Jim O'Neill, chief economist at Goldman Sachs, told the Financial Times on the fringe of the Ambrosetti forum of political and business leaders in Cernobbio, northern Italy.
Results released yesterday of a Barclays Capital poll of almost 1,200 investors and economists conducted during August, ranked ECB communication efforts on a par with those of the US Federal Reserve, and better than those of the Bank of England.
Separately Rodrigo de Rato, IMF managing director, said the economic effects of the markets crisis could be significant and global.
But he suggested the impact on global growth would be modest in 2007.
The reappraisal of risks could prevent even larger problems from emerging in the future, Mr de Rato added. To the extent that these vulnerabilities, which had the potential to become much larger, are now being taken more seriously, this is good for medium-term financial stability."
