The European Central Bank has no reason to change its accommodative monetary policy stance while the economy remains in fragile condition, governing council member Christian Noyer said today.
Echoing recent comments from ECB president Jean-Claude Trichet, Mr Noyer said signs of recovery in the euro zone were still tentative, with only Germany and France of the big economies reporting positive growth in the second quarter.
"That is the reason why it is right for the moment to maintain the budgetary and monetary policies to support economic activity to get us out of the crisis," he said at a news conference .
Mr Noyer said medium-term inflation expectations among households and in financial markets were well anchored and there was no threat of deflation in the euro zone or of a sudden rise in inflation.
Euro zone consumer prices fell 0.3 per cent year-on-year in September after dipping 0.2 per cent in August, 0.7 per cent in July and 0.1 per cent in June. Economists polled by Reuters expect it to pick up in the final months of this year.
"We must watch for all possible developments but I not see any risk of deflation in France and in the euro zone," he said.
"We do not see either at the current time, a risk of a surge in inflation....which meant we could reiterate just a few days ago that monetary policy seemed perfectly appropriate in the current situation."
The ECB has cut its main interest rate to a record low of 1 per cent and has pumped billions of euro into the economy through unorthodox measures including purchasing covered bonds and offering banks unlimited liquidity.
Mr Noyer's remarks followed last week's comments from Trichet, who said it was too early to start winding down such support with the economy still weak and no sign of any inflation threat.
"There is no reason for the moment to change our policies, which should remain oriented towards supporting activity and restoring economic activity, even if we have to keep ensuring we have the means of withdrawing these accommodative policy aspects when the moment comes," Mr Noyer said.
"That moment has not come today."
But Mr Noyer said it was important for government's to prepare exit strategies that would ensure the viability of public finances.
"It is very important to be credible over the medium- and long-term," he said.
"Otherwise we would risk tensions on the markets."
Mr Noyer, who is also head of the Bank of France, said the French economy, which grew by a surprise 0.3 per cent in the second quarter, should continue to recover in the third quarter but he said the situation remained fragile.
He said "for the moment" the Bank of France was forecasting growth of 0.3 per cent in the third quarter as well.
Reuters