The European Central Bank reiterated its warning today that the current high level of liquidity in the 12-country euro zone might possibly fuel inflationary pressures in the single-currency area in the medium term.
While acknowledging that some of the excess liquidity could reflect an increased preference on behalf of households and companies for more liquid forms of investment, 'the high levels reached in 2004 remain a concern for the ECB and call for vigilance,' the guardian of the euro wrote in its 2004 annual report.
'It cannot be ruled out that some of the higher liquidity will be used for increased consumption, particularly at a time of stronger economic confidence and then be associated with higher inflation,' the report said.
