German central bank governor Axel Weber, an influential member of the European Central Bank governing council, threw cold water today on market expectations for a euro zone interest rate cut in coming months.
'The consensus currently dominating the market regarding rate expectations clearly underestimates inflation risks in my opinion,' Weber said in a speech delivered in Bonn.
'Expectations regarding rates for the euro zone do not reflect in any case the evaluation of the central bank's monetary policy, which is devoted to price stability,' the Bundesbank governor added.
His remarks were set against a background of a surge in the value of the euro to a record high point against the dollar.
Financial markets have factored in an expected interest rate cut for the 15-nation euro zone in the next few months, with some analysts seeing the main lending rate falling from the current level of 4% as early as April. The option of raising rates had been thoroughly discounted by market players.
But Weber said there were 'identified' risks such as the possibility that higher wages and oil prices could lead to sustained higher inflation.
At the same time, 'perspectives for the real economy' within the 15-nation zone were not 'significantly weaker,' he added in response to an argument advanced by those who have called for the ECB to lower its main lending rates.
