ECB’s Weber Sees Subdued Inflation During ‘Protracted’ Recovery

By Gabi Thesing

Sept. 8 (Bloomberg) -- European Central Bank council member Axel Weber said price pressures will remain subdued as the euro- region economy struggles to recover from recession.

There is little risk that the ECB’s policy of flooding banks with cash will stoke inflation and it will take some time before the economy is growing fast enough to push up prices, Weber said in a speech in Frankfurt today. “All in all, inflation fears, understandable as they may be, are unfounded.”

The ECB last week left its benchmark interest rate at a record low of 1 percent and said it will continue to lend banks as much money as they want at that rate for up to 12 months. The ECB remains wary of nipping the euro-region recovery in the bud by tightening policy too soon as rising unemployment and the expiry of government rescue packages threaten to damp expansion next year.

Weber, who heads Germany’s Bundesbank, said the economic recovery will be “protracted” and interest rates are “appropriate” for the inflation outlook. While “it’s too early” to withdraw the monetary stimulus, a “timely exit” is nevertheless vital, he said.

To contact the reporter on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.net