Top ECB governor hints at rate rise

The chances of interest rates rising next June rose yesterday as leading European Central Bank (ECB) governor Nout Wellink warned…

The chances of interest rates rising next June rose yesterday as leading European Central Bank (ECB) governor Nout Wellink warned of growing inflationary pressure in the euro zone.  Marc Coleman, Economics Editor, reports.

Speaking at a news conference in Amsterdam, Mr Wellink, governor of the Dutch central bank, described the euro-zone economy as "going at full steam".

Mr Wellink's remarks echo comments on Tuesday by Greek central bank governor Nicolas Garganas and Austrian central bank governor Klaus Liebscher.

"If the incoming data leads me to the conclusion that risks are likely to materialise, then my position would be that we must act immediately, decisively and in a firm way to ensure price stability. Period," Mr Garganas said.

READ MORE

Known for their tough stance on interest rates, the three ECB council members' comments suggest that it is less worried about recent instability on world stock markets, and that the case for further rate rises is growing.

"Policy rates are at an historically low level and, so far, long-term rates have barely reacted to tightening by the ECB," Mr Wellink said yesterday. "The question is whether, other things being equal, policy should not be aimed at higher short-term policy rates than in the past."

The ECB's main refinancing rate now stands at 3.75 per cent, 1.75 percentage points above its previous low but a percentage point below its all-time high of 4.75 per cent.

Mr Wellink also warned that in some countries house prices had "overshot" sustainable levels. "In a climate of low interest rates and reduced risk awareness, both households and investors may enter too lightly into financial risks and debt accumulation."

The ECB's governing council's intentions regarding a rate rise are unlikely to crystallise until May, when it meets in Dublin.