UPDATE 2-ECB's Noyer says inflation expectations well-anchored

Mon Dec 3, 2012 2:13am EST

* ECB Noyer: global growth sluggish and fragile

* Unconventional steps never imposed by governments

* BOJ gov: should be willing to stand up to markets

By Leika Kihara and Stanley White

TOKYO, Dec 3 (Reuters) - European Central Bank governing council member Christian Noyer said on Monday that he saw no reason currently to worry that a sharp increase in money pumped into markets by major central banks was inflationary, warning that global economic growth remained sluggish and fragile.

"Expansion in central bank money has not affected inflation expectations, which have remained well-anchored," Noyer said during a seminar in Tokyo, adding that central banks had "many tools" available to mop up liquidity when needed.

An ECB scheme that allows it to purchase a euro zone country's sovereign debt, known as outright monetary transactions (OMT), is vital to restoring the functioning of monetary policy and dispelling fears that the euro currency block could break up, he said.

Noyer, who also heads the Bank of France, said it was also up to euro zone governments to improve public finances and use structural reforms to make the region's economies more competitive as a sovereign debt crisis that started in Greece is poised to enter its fourth year.

"It has always been perfectly clear that the responses to the real roots of the crisis can only be provided by the governments themselves and that monetary policy can never durably mitigate political shortcomings," he said.

Noyer also rebuffed criticism that the ECB's government bond purchases could be equivalent of monetising public debt, saying that the central bank is allowed under law to conduct such purchases from the secondary market.

Speaking at a separate seminar, her said the OMT, which allows the ECB to potentially buy unlimited amounts of sovereign debt, can only be enacted if a country applies for a bailout and agrees to improve public finances and implement sometimes painful structural reforms.

The strict conditions of the OMT will help bolster confidence in the euro zone, he said.

ECB policymakers hold their regular monthly policy meeting on Dec. 6 and are widely expected to leave interest rates on hold at a record low of 0.75 percent. Economists are divided on whether the central bank will cut next year.

Noyer poured cold water on perceptions that central banks may have lost some independence after the global financial crisis in 2008, arguing that the non-conventional measures taken by major central banks were never imposed by governments.

"In all countries, non-conventional measures and the consecutive expansion of balance sheets were a deliberate and voluntary response to financial market developments that threatened their integrity, their functioning and overall economic stability," he said.

Bank of Japan Governor Masaaki Shirakawa, who spoke along side Noyer, also appealed for understanding that the BOJ doesn't adjust monetary policy to match investors' expectations.

"While central banks should have deep respect for financial markets ... they should be willing to stand up to the market from time to time," he said.

BOJ Deputy Governor Kiyohiko Nishimura, who also spoke on Monday, said central bank should find tools to support their country's efforts to boost the economy's growth potential.

The BOJ has been under intense political pressure to take bolder action to beat deflation that has plagued Japan for more than a decade.

Shinzo Abe, the head of a main opposition party set to win next month's general election, has called for "unlimited" easing to achieve 2 percent inflation and a possible revision to a law guaranteeing the BOJ's independence.

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