FRANKFURT, March 29 The European Central Bank
should not delay raising interest rates from their current "very
accommodative" level, Executive Board member Juergen Stark was
quoted as saying on Tuesday.
The policymaker also said the ECB would look at euro zone
liquidity needs after the Irish banking stress tests are
published later this week.
"It is time to go in the direction of normality, step by
step," Stark told daily Frankfurter Allgemeine Zeitung, when
asked about interest rates.
"We cannot keep the rate at this level for a long time,
especially not in connection with extraordinary credit help."
The interview will be published in Wednesday's edition of
the newspaper, but was made available to news agencies on
Stark, who heads the ECB's influential economics unit, also
warned of gathering inflation worries, saying there were clear
signs that higher import prices were going through the
production process, and that could push consumer price inflation
But he also said the ECB did not want to choke the recovery.
"For us at the moment it is not about applying brakes to
economic recovery," Stark said.
"It is much more about avoiding the negative side effects of
monetary policy, which has become very accommodative."
Despite the disasters in Japan and the surge in tensions in
parts of the Middle East, recent ECB policymaker comments have
cemented expectations that the bank will raise rates, which have
been frozen at a record low 1 percent since May 2009, when it
meets on April 7.
ECB Governing Council member Jozef Makuch said on Tuesday
the central bank is "highly likely" to raise its main interest
rate next month. [ID:nLDE72S1P7]
Stark, one of the ECB's six-strong board, said that
uncertainty had increased due to the events in Japan, but added
that its impact was likely to remain limited for the euro zone.
"Our complete assessment has not changed," he said.
Stark also said that the nuclear disaster in Japan and
turmoil in the Middle East could lead to rising global energy
prices, and them then remaining at a high level.
"Now is the end phase of Irish bank stress tests. Then we'll
see the capital requirement," Stark said. "And that will show
the consequences for liquidity provision via the Eurosystem and
via the ELA (emergency liquidity assistance) of the Irish
A source told Reuters last week the ECB is putting the
finishing touches on a new facility that will give troubled euro
zone banks liquidity over a longer time frame, throwing a
lifeline to Ireland's ailing banks.
The plan will initially be "tailor made for Irish banks" and
was likely to be announced this week to dovetail with the
results of fresh stress tests on the country's lenders, the
source said. [ID:nLDE72R087]
Stark also said he saw clear signs of improvement in money
markets while accepting that some banks remain dependent on ECB
"Weak banks' dependency on our refinancing operations cannot
be a permanent state," Stark said.
Stark also warned against bond holder haircuts, saying they
could destabilise the financial system: "The ECB fears that in
Europe and in other parts of the world, this could lead to a new
wave of insecurity."
(Reporting by Sakari Suoninen and Marc Jones; Editing by Ruth