ECB's Asmussen seeks to allay inflation fears

FRANKFRUT Thu Dec 6, 2012 9:46am EST

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FRANKFRUT Dec 6 (Reuters) - A leading European Central Bank policymaker sought to allay concerns that the bank's attempts to revive private lending in the euro zone might trigger inflation, saying there were no signs of widespread price increases around the corner.

Executive Board member Joerg Asmussen said ECB moves to flood the interbank market with liquidity were needed in the wake of the financial crisis because banks were failing to lend to each other.

"There are different concepts of liquidity and not all liquidity that a central bank makes available is inflationary," Asmussen said at a banking conference held shortly after the ECB's monthly rate meeting.

Concerns about the ECB policies leading to runaway inflation have commanded attention in Germany, the European Union's paymaster and largest economy, where property prices have mushroomed as investors seek protection in real assets.

"Despite strong growth in the size of the central bank's balance sheet, there are no current signs of increasing risks of inflation recognizable in the medium term," he said.

Asmussen said he directed some of his comments specifically at the German public, where the nature of the crisis debate was "clearly very special" compared to that of its euro zone partners.

While the debate in Germany reflected concerns that the ECB had done too much in response to the crisis, the debate outside of Germany questioned whether the euro zone's most powerful firefighter had done too little.

The ECB needed to grease the wheels of banks whose lending operations ground to a halt during the crisis, said Asmussen, a former German deputy finance minister who joined the ECB in January.

"But this ample, available liquidity is not to be confused with the growth in money supply or credit that drives inflation," he said.

"That is where we see a very subdued underlying momentum. Banks continue to be very reserved in the provisioning of credit to the private sector and demand for credit is also low," Asmussen said.

(Writing by Thomas Atkins; editing by Paul Carrel and Gareth Jones)

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