–Adds Comments to Story Sent at 14:28 GMT
FRANKFURT (MNI) – The European Central Bank must change its
monetary policy stance as risks to price stability move to the upside,
Executive Board member Juergen Stark said Wednesday.
“At the height of the financial crisis, the ECB lowered interest
rates aggressively in the face of downside risks to price stability,”
the central banker explained in an opinion piece posted on the website
of the Financial Times.
“To the extent that these risks tilt to the upside, the ECB needs
to reverse its stance,” he added.
“If it failed to respond symmetrically to the evolving
circumstances, investors would soon demand a higher premium to
compensate for the increased inflation risk,” he said.
“This would hurt first and foremost those economies that are
burdened by high debt servicing costs,” Stark explained. “It is not
Eurozone policy interest rates — which in fact are exceptionally low —
that keep borrowing costs elevated in certain Eurozone countries.”
The non-standard measures the ECB has implemented since the crisis
began remain in place, but they are “temporary” and “cannot replace the
needed repairing and strengthening of banks balance sheets and public
finances,” he reminded.
“Giving consideration to private or public debt sustainability, at
the cost of price stability, would be a clear violation of the ECBs
mandate,” he argued.
“Therefore, banks that lack sufficient access to market funding are
strongly urged to boost their capital bases, also by taking full
advantage of government support measures for recapitalization,” he said.
Stark’s hawkish comments provide further weight to expectations
that the central bank will hike rates for the first time in nearly two
years at next meeting April 7.
–Frankfurt bureau, +49-69-720142, tbuell@marketnews.com
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