ECB's Noyer says inflation expectations well-anchored

TOKYO Mon Dec 3, 2012 12:44pm IST

1 of 2. European Central Bank (ECB) governing council member Christian Noyer speaks at the Paris Europlace Financial Forum in Tokyo December 3, 2012. The European Central Bank's scheme to purchase government debt from euro zone countries is an important tool to ensure the proper functioning of monetary policy and to dispel fears of a breakup of the currency zone, Noyer, who is also head of the Bank of France, said on Monday.

Credit: Reuters/Yuriko Nakao

TOKYO (Reuters) - European Central Bank governing council member Christian Noyer said on Monday that he saw no reason currently to worry that a sharp increase in money pumped into markets by major central banks was inflationary, warning that global economic growth remained sluggish and fragile.

"Expansion in central bank money has not affected inflation expectations, which have remained well-anchored," Noyer said during a seminar in Tokyo, adding that central banks had "many tools" available to mop up liquidity when needed.

An ECB scheme that allows it to purchase a euro zone country's sovereign debt, known as outright monetary transactions (OMT), is vital to restoring the functioning of monetary policy and dispelling fears that the euro currency block could break up, he said.

Noyer, who also heads the Bank of France, said it was also up to euro zone governments to improve public finances and use structural reforms to make the region's economies more competitive as a sovereign debt crisis that started in Greece is poised to enter its fourth year.

"It has always been perfectly clear that the responses to the real roots of the crisis can only be provided by the governments themselves and that monetary policy can never durably mitigate political shortcomings," he said.

Noyer also rebuffed criticism that the ECB's government bond purchases could be equivalent of monetizing public debt, saying that the central bank is allowed under law to conduct such purchases from the secondary market.

Speaking at a separate seminar, her said the OMT, which allows the ECB to potentially buy unlimited amounts of sovereign debt, can only be enacted if a country applies for a bailout and agrees to improve public finances and implement sometimes painful structural reforms.

The strict conditions of the OMT will help bolster confidence in the euro zone, he said.

ECB policymakers hold their regular monthly policy meeting on December 6 and are widely expected to leave interest rates on hold at a record low of 0.75 percent. Economists are divided on whether the central bank will cut next year.

Noyer poured cold water on perceptions that central banks may have lost some independence after the global financial crisis in 2008, arguing that the non-conventional measures taken by major central banks were never imposed by governments.

"In all countries, non-conventional measures and the consecutive expansion of balance sheets were a deliberate and voluntary response to financial market developments that threatened their integrity, their functioning and overall economic stability," he said.

Bank of Japan Governor Masaaki Shirakawa, who spoke along side Noyer, also appealed for understanding that the BOJ doesn't adjust monetary policy to match investors' expectations.

"While central banks should have deep respect for financial markets ... they should be willing to stand up to the market from time to time," he said.

BOJ Deputy Governor Kiyohiko Nishimura, who also spoke on Monday, said central bank should find tools to support their country's efforts to boost the economy's growth potential.

The BOJ has been under intense political pressure to take bolder action to beat deflation that has plagued Japan for more than a decade.

Shinzo Abe, the head of a main opposition party set to win next month's general election, has called for "unlimited" easing to achieve 2 percent inflation and a possible revision to a law guaranteeing the BOJ's independence.

(Editing by Michael Watson and Simon Cameron-Moore)

Politics

REUTERS SHOWCASE

Fund Raising

Fund Raising

Flipkart raises $700 million in fresh funding.   Full Article 

Reforms Push

Reforms Push

Modi may order insurance, coal reforms if vote delayed - officials.  Full Article 

Reuters Exclusive

Reuters Exclusive

India looks to sway Americans with nuclear power insurance plan  Full Article 

To Boost Growth

To Boost Growth

Crank up public spending to revive growth - chief economic adviser.   Full Article 

Bold Steps

Bold Steps

SpiceJet rescue plan marks bold bet on Indian aviation recovery.   Full Article 

New Airline

New Airline

Tata, Singapore Air venture Vistara to take off on Jan 9.  Full Article 

Online Sales

Online Sales

Knock knock. Who's there? Amazon's best-selling holiday author.  Full Article 

Hacking Attack

Hacking Attack

N.Korea says did not hack Sony, wants joint probe with U.S.  Full Article 

Reuters Poll

Reuters Poll

BSE Sensex to hit 32,980 by December 2015  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage