Money supply growth in the euro zone hit a 17-year high in February and German data added to evidence of inflation risks, providing fresh ammunition today for the European Central Bank to keep raising interest rates.
ECB Executive Board member Jose Manuel Gonzalez-Paramo called economic growth in the 13-nation region strong and inflationary risks persistent in comments that also suggested the ECB sees little barrier to pushing up credit costs further. "Monetary policy remains accommodative," Mr Gonzalez-Paramo said at a Madrid conference.
So far, the ECB's 1.75 percentage points of rate hikes to 3.75 per cent since December 2005 have done little to calm the rapid pace of money and credit growth.
M3 money supply grew at a 10 per cent annual rate last month, its fastest pace since 10.2 per cent in February 1990, according to an ECB report, and topping analysts' forecasts for a 9.8 per cent annual rate.
January's figure was upwardly revised to 9.9 per cent from 9.8 per cent. German states reported that inflation accelerated slightly in March, foreshadowing a possible pickup in euro zone price data due on Friday.
A euro zone number above 2 per cent would break the trend of contained inflation in the 13-nation region. ECB policymakers have warned inflation may worsen later this year given strong economic growth, evidenced by new German sentiment data.
The Gfk consumer survey for April said sentiment is likely to improve, led in part by gains in personal incomes. Rising wages and low rates have fuelled strong credit growth.
The ECB report found loans to the private sector also remained in record territory, although they have moderated somewhat from August's peak.
They grew at a 10.3 per cent annual rate, down from 10.6 per cent in January. But details on credit growth were mixed. Loans to buy a home grew at an unchanged 9.4 per cent annual rate, and household borrowing growth also held steady at 8 per cent, while consumer credit growth decreased to 6.5 per cent in February from 7.1 per cent annual rate in January.
The ECB has consistently cited the medium-term inflationary risks posed by rapid money and credit growth in raising its benchmark policy rate. Mr Gonzalez-Paramo cited this danger in Madrid, saying the ECB expects inflation to pick up pace again in 2008.