The European Central Bank will weigh the impact of Japan's crisis on its policy decisions, an ECB rate-setter said, in comments analysts said had not significantly diluted expectations of an April interest rate hike.
"We will as usual take account of all new information and that will be part of our global assessment," ECB governing council member Christian Noyer was quoted as telling German daily Handelsblatt today.
The newspaper had asked him if the nuclear disaster and tsunami in Japan could influence decision-making on rates at the ECB.
Mr Noyer also said the ECB would sharpen its message to governments about the importance of fiscal discipline and maintaining competitiveness.
Events in Japan have prompted money markets to trim bets on the scale of interest rate tightening expected this year from the ECB, and pricing for an April rise also looks less certain than it did in the aftermath of a policy meeting in early March.
ECB president Jean-Claude Trichet signalled at the time that a hike could well come in April by saying inflation risks required "strong vigilance".
Ewald Nowotny, also a governing council member, said on Monday the "strong vigilance" message on tackling inflation - used previously to indicate the bank was about to move on rates - still applied despite added economic uncertainty after Japan's earthquake and unrest in North Africa.
Although there is a lot of uncertainty, many economists think the Japanese disaster will slow global growth by only a small amount, and not enough to stop the ECB.
"We think that a hike in April is still on the cards," Danske Bank economist Frank Oland Hansen said. "We would have to see the inflation outlook deteriorate notably before we would expect the ECB to not deliver after the message in the last meeting."
Furthermore, reconstruction demand for commodities might after some months prove inflationary, which could increase pressure on the ECB to raise rates.
"If there is still a lot of uncertainty in April, this could cause the ECB to take a wait-and-see approach," Mr Hansen said, but added it was likely the situation had settled enough by the ECB meeting for the rate hike to take place.
Economic events that ensued the last time the ECB raised rates, in July 2008, may also weigh on decision-makers' minds.
Then, the central bank pushed rates up by 0.25 per cent to 4.25 per cent on the back of rapidly rising oil prices as downside risks to the economy mounted - only for the fall of Lehman Brothers in Sept 2008 to trigger a global recession. In contrast to the added caution triggered by the Japan earthquake, euro zone leaders' decision at the weekend to bolster the region's rescue fund cleared the way for the ECB to focus on inflation.
In the Handelsblatt interview, Mr Noyer also said the ECB's current monetary policy stance supported the economy and would continue to do so. But rising oil and commodities prices could lead to further price hikes, boosting inflation expectations.
Mr Noyer also said the ECB had consistently pushed governments to adopt sustainable public finances and foster competitiveness, adding that the sovereign debt crisis had shown that the ECB must be more aggressive in issuing warnings.
"Every month the ECB president had presented reports to finance ministers, which showed that they were driving full-speed towards a wall," Mr Noyer said. "Maybe we have learnt that we must be even more direct."
Reuters
