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Euro ministers tell ECB not to hike rates in haste
11/9/2005
BRUSSELS, Nov 8 (Reuters): The European Central Bank got a blunt message from politicians and labour unions yesterday-think twice before hiking euro zone interest rates because you risk killing economic recovery.
"We reminded the ECB it shouldn't take hasty decisions," Jean-Claude Juncker said after chairing a meeting of finance ministers from the 12 euro zone countries and ECB President Jean- Claude Trichet.
While the ECB says there is no evidence so far that high oil prices have triggered knock-on inflationary pressure through big wage demands, it says it is worried and will change rates if needed to fend off what he calls second-round inflation.
Juncker, addressing a news conference to sum up the outcome of "thorough debate" with Trichet, made it clear ministers felt wages were well under control and there was little risk of the spillover in inflation the ECB fears as a result of oil prices that hit a record high in late August.
The main concern was still whether economic growth would pick up as hoped, something that would not be helped if the ECB raised the cost of lending and borrowing in the name of keeping a lid on inflation.
"We warned about the possible impact of a rise in interest rates on an economic recovery which is tangible but which is fragile given the downside risks that continue to exist.
Growth in the euro zone is expected to hit little more than a paltry 1 per cent this year, even if there is a pickup in the second half that has yet to show through in earnest. Many ministers other than Juncker voiced similar views as they went in and out of their meeting, notably those from Austria, Spain and the Netherlands.
Other organisations such as the Organisation for Economic Co-operation and Development have also highlighted the need to avoid any rushed ECB move to make the cost of borrowing more expensive when growth this year is expected to barely top 1 per cent in the euro zone.
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