ECB policymakers see growth risk, at odds on inflation

Thu Oct 13, 2011 7:51am EDT
 
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By Martin Santa and Terhi Kinnunen

BRATISLAVA/HELSINKI (Reuters) - The euro zone could fall back into recession and the European Central Bank will discuss cutting interest rates at its policy meeting next month, ECB policymakers said on Thursday.

ECB Governing Council member Erkki Liikanen stressed, however, that the euro zone's central bank was in no way pre-committed to cutting rates when it meets in November.

Last week, the ECB opted to keep rates on hold at 1.5 percent despite some of the bank's policymakers calling for a cut amid signs the euro area economy is deteriorating further and as Greek default fears weigh on the markets.

Euro zone inflation jumped to 3.0 percent last month. Several ECB policymakers have said they expect it to ease below the bank's target level of just under 2 percent next year -- a view echoed by Jozef Makuch, Slovakia's central bank chief.

"I expect inflation to drop below 2 percent next year," Makuch said. "Negative gross domestic product can't be ruled out if downside risks materialize."

The ECB said in its October monthly bulletin, released on Thursday, that downside risks relate especially to financial market turmoil. It also saw energy prices, protectionism and global imbalances as downside threats to growth.

Makuch's views on the economic outlook echoed comments from Austrian central bank chief Ewald Nowotny, who said earlier this week the euro zone economy risks a protracted period of weakness while inflation is not a worry.

But Liikanen said risks to stable prices are still balanced.   Continued...

 
<p>Tourists sit on a hill overlooking Athens outside the archaeological site of the Acropolis due to a 48-hour strike by Culture Ministry employees, October 13, 2011. REUTERS/Yannis Behrakis</p>