Bundesbank unfazed by emerging markets, Nowotny cool on rates

Mon Feb 17, 2014 9:46am EST
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By Eva Taylor and Francesco Canepa

FRANKFURT/LONDON (Reuters) - The turbulence experienced in emerging markets early this year is insufficient to derail a recovery in the global economy, which could strengthen during 2014, Germany's Bundesbank said on Monday.

Currencies in Turkey, South Africa, Hungary and Russia suffered major sell-offs over the past month before recovering slightly after central banks fought back via interest rate hikes or exchange rate interventions.

With euro zone inflation far below the European Central Bank's target, policymakers in Frankfurt, including Bundesbankers, are watching the turmoil in case it affects the economic outlook.

The ECB says the bloc has proved resilient so far.

Speaking in London, ECB Governing Council Ewald Nowotny said it was "good news that we see improvements in the real economy" but added that the central bank still needed to discuss how this affected inflation.

Slightly stronger-than-expected growth in Germany and France pushed the euro zone's recovery up a gear in the fourth quarter.

The ECB has set out two scenarios that could trigger fresh policy action: a deterioration in the medium-term inflation outlook and an "unwarranted" tightening of short-term money markets.

"There might be good arguments to say let's wait and see (on interest rates)," Nowotny said, adding: "A negative deposit rate ... is one potential element but there has been no decision and we are still in the process of discussion."   Continued...

Germany's federal reserve Bundesbank President Jens Weidmann poses in front of the Bundesbank headquarters during a photo shoot with Reuters in Frankfurt May 17, 2013. REUTERS/Kai Pfaffenbach