Central Bankers remain calm despite troubles

Although the ECB president is on holiday (somewhere in the euro zone) ECB officials insist that it is business as usual at the Eurotower in Frankfurt.

At least half of the executive board, which is responsible for the bank's day-to-day activities, are at their desks and Mr Duisenberg is available by telephone should they need to speak to him.

The ECB continues, of course, to provide liquidity for banks and to conduct its tender operations, and it published its monthly bulletin as usual last night.

But the Governing Council, comprising the 11 euro zone central bankers, the executive board and Mr Duisenberg, is not due to meet until August 31st. Its last meeting, on August 3rd, took place by telephone conference so that, by the time they meet again, the central bankers will not have been in the same room for six weeks.

ECB officials point out that, although the council meetings are normally held every two weeks, they can be called at any time - by telephone conference if necessary.

Even a conference call, however, would require the central bankers to interrupt their holidays and return to their desks and such a move could be interpreted by the markets as evidence of panic.

Officials say that Mr Duisenberg is frequently unavailable for ECB meetings due to commitments elsewhere, such as reporting to the European Parliament, but business carries on as normal without him.

The monthly bulletin expresses concern about the euro exchange rate, which dipped towards its record low this week, warning that it could fuel inflation.

"Given the extent of the accumulated depreciation of the euro, which in nominal effective terms was approximately 15 per cent from the first quarter of 1999 to the beginning of August 2000 and the protracted period over which the depreciation has occurred, the recent decline in the exchange rate of the euro has reinforced concerns of possible, future, inflationary consequences, particularly in a phase of strong economic growth," the bulletin said.

The bulletin presents an upbeat view of the euro zone economy and predicts that growth will continue to be robust and unemployment will fall further in the coming months.

But it hints that Mr Duisenberg and his colleagues may be considering a further increase in interest rates in the short term and warns that the risks for price stability are all on the upside.

Although the bulletin warns against reading too much into the recent rise in euro zone inflation, from 1.9 per cent to 2.4 per cent, due to an increase in oil prices, it predicts that year on year inflation will be higher than expected.

"On the basis of current information, the path of year on year consumer price inflation over the coming months could be somewhat higher than was generally anticipated, mainly as a consequence of the renewed increase in oil prices," it said.