European Central Bank chief economist Juergen Stark said today that the bank had good reasons to work towards a normalisation of its monetary policy in light of higher inflation.
'The conditions are there and there are good reasons to normalise the monetary policy stance,' Stark told the Japanese financial daily Nikkei.
ECB president Jean-Claude Trichet has suggested the bank could raise its benchmark interest rate in April from the current record low of 1% to ward off expectations that inflation could rise much higher. Euro zone inflation edged up to 2.4% in February, compared with the bank's medium-term target of just below 2%.
Other ECB governing council members, Yves Merch of Luxembourg and Gertrude Tumpel-Gugerell of Austria have also suggested the bank is likely to raise rates next month.
Stark said the bank was concerned about what are known as second-round effects, which occur when expectations of higher inflation lead to higher wage demands and retail price increases.
'It is the task of the central bank to prevent these effects from materialising,' he said, which the ECB normally does by raising its benchmark lending rate.
The economist noted that the natural disaster and nuclear crisis in Japan had raised uncertainly over the global outlook for economic growth, which might argue against a rate hike.
But he said that if Japan had to substitute other energy sources for nuclear power following the crisis at the Fukushima plant north of Tokyo, it could lead to higher global commodity prices, providing more fuel for inflation.
As for exceptional cash provision measures taken during the global financial crisis, the ECB economist said commercial banks were less dependent on them, and that they might be revised in June.
That would depend in part 'on the measures taken by governments and the decisions by the heads of state or government this week' at a European Summit, he said.
