The European Central Bank is not giving any guidance for 2007 rates yet, but markets have correctly understood its policy for the rest of 2006, ECB Governing Council member John Hurley said in a German interview published today.
The Central Bank Governor said decisions on ECB interest rates for next year would be driven by economic data, and pointed to signs that higher rates were starting to cool the Irish property sector, according to comments in the Financial Times Deutschland.
The ECB has raised interest rates five times since December last year, and financial markets expect a further rate rise to 3.5% from 3.25% at the central bank's December meeting this year.
'Markets understand the situation in relation to 2006,' Hurley said. 'In relation to 2007, we have to look at the data,' he said. 'There is no pre-commitment,' he added.
Hurley's comments echo those of fellow Governing Council member Klaus Liebscher in today's Frankfurter Allgemeine Zeitung, and by ECB President Jean-Claude Trichet, who told the European Parliament last week that he did not wish to shift market rate expectations for the rest of 2006.
Hurley said the recent fall in oil prices - which the ECB views as a prime inflation risk - was a welcome and significant development, though there was still great uncertainty about their future development.
Wages also appeared in check, despite the strong recovery in the euro zone. 'We haven't really seen any spill-over as of yet into wages. Wages have been pretty well behaved,' Hurley said.
On the Irish housing market, Hurley said that his central scenario was for a soft landing next year and beyond, due to strong fundamentals.
'What we are beginning to see are tentative signs coming from housing indicators and anecdotal evidence of maybe a lagged effect of the increase in interest rates,' he said, adding that this should eventually pull down Ireland's rapid credit growth.
Hurley was optimistic about the Irish economy overall, though, seeing growth above 5% in 2006. 'Looking forward, we would see that reducing somewhat, but we still think that we can probably grow at about between 4% and 5% for a number of years,' he said.
