Japanese disaster a factor in ECB rate decision

March 16, 2011

, FRANKFURT, Mar 16 – Financial and economic turmoil caused by the Japanese earthquake and nuclear crisis will be a factor in whether the European Central Bank raises interest rates next month, an ECB governor said Wednesday.

"We will always consider all new information available and it (Japan) will be part of our global assessment," Bank of France governor Christian Noyer told the German business daily Handelsblatt in an interview.

Noyer is a senior member of the ECB\’s 22-person governing council that is expected to raise the bank\’s main interest rate in April from the current record low of 1.0 percent to curb the threat of inflation from high oil prices.

Some analysts have questioned however whether events in Japan might slow global economic activity and thus ease inflation pressures, allowing the ECB to keep its focus on helping weaker peripheral eurozone economies.

Asked if higher oil prices also threatened eurozone economic activity, Noyer said only that "the current course of action of the ECB greatly supports the economy and will continue to do so."

According to Capital Economics bond specialist John Higgens, the disaster in Japan has "caused a reassessment of the outlook for ECB policy."

Financial markets have been slammed this week by fears over the impact of the disaster in Japan, with investors piling into safe-haven assets like US and German bonds.

Oil and other commodity prices have also declined, "which should dampen policymakers\’ concerns about rising inflation," Higgens said.

"Investors may also believe that the ECB will be reluctant to tighten monetary policy at a time when the Bank of Japan is doing the opposite," he added.

ECB president Jean-Claude Trichet told media and markets early this month that while a rate hike in April "was possible, it is not certain."

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