Press release
Parliament praises ECB anti-inflation policy, but says caution needed when raising interest rates
Economic and monetary affairs - 26-10-2006 - 16:44
MEPs have adopted by 157 votes in favour to 49 against with 84 abstentions a report praising the ECB’s handling of interest rate policy, while warning of the need for caution when raising rates to avoid endangering growth. It also calls for the publication of minutes of rate setting meetings and says Parliament should the right to approve the candidate nominated by the Council to fill vacancies on the Executive Board.
The own initiative report is a response to the ECB’s annual report for 2005.
Parliament praises the ECB’s policy of “concentrating on its most important objective, preserving price stability,” and says it was correct to increase rates in 2005. MEPs stress that the Bank must be aware of the risks to growth of continuous rate rises, but also continue to anchor inflationary expectations.
Board appointments and transparency
On appointments to the ECB Executive Board, MEPs stress that nationality should be irrelevant. While stressing the treaty requirement for candidates with experience of monetary and banking matters, they also argue that it is important for a variety of backgrounds to be represented on the Board. Parliament says transparency and accountability would be improved if the Council evaluated several candidates and if the candidate proposed by the Council were then subject to a vote of approval by Parliament.
MEPs call, once again, for the publication of summary minutes of rate setting meetings, with clear statements of the arguments in favour and against decisions taken and the reasons why these decisions were taken. This should not, they say, replace the current press conferences by the ECB President after such meetings, which provide “an invaluable and timely insight for observers and market participants”.
Money supply and euro notes
The report asks the ECB to take action with regard to the “persistently high values of the M3 money supply” and to investigate developments in the mortgage and mergers and acquisitions markets.
MEPs highlight the nearly 21 per cent increase in the number of €500 notes in circulation, and say this needs to be analysed and the risks identified. They also say the next generation of banknotes should feature real living beings, landscapes, European human undertakings or personalities, since the current neutral images are seen as giving a cold image of monetary integration.
Exchange rates and hedge funds
The report emphasises the risks of rapid adjustments in international disequilibria. It invite the Eurogroup, ECB and Council to step up coordination of their action in exchange rate policy.
Parliament says it shares the fears expressed by the ECB about hedge funds and calls for the ECB to carry out analyses of the issue.
REF.: 20061021IPR11913