Weber says ECB's rate signal "quite necessary"

Reuters

FRANKFURT (Reuters) - The European Central Bank's signal last week that it is ready to raise interest rates was "quite necessary" to tackle firming inflation pressures, ECB policymaker Axel Weber said on Tuesday.

The ECB shocked financial markets last week when the bank's President Jean-Claude Trichet said it may hike interest rates next month, wrongfooting economists and traders who had not expected it to raise rates until later in the year.

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"I see the signaling of a rate move as quite necessary," Weber told the Bundesbank's annual results news conference. "The potential has been generated to counter price pressures, and early."

Weber shocked markets himself last month when he backed out of the race to become the next ECB president by announcing he was stepping down as Bundesbank chief at the end of April.

He missed last week's ECB's policy decision due to a meeting with Cologne University, to which he intends to return after a one-year stint at the University of Chicago, but backed Trichet's statement that the ECB would exercise "strong vigilance" over rising inflation, a phrase that in the past signaled a rate rise was only a month away.

"My colleagues took the right decision," he said.

He added that policymakers needed to be vigilant to the risks posed by tensions in Arab countries and rises in the oil price.

"If the tensions in the Arab world do not subside, I see the potential for the oil price to remain high as it is now for some time, or even rise further," Weber said.

Turning to interbank markets, he said these were generally calming and that in the coming months the ECB should prepare an exit from its extraordinary liquidity operations.

The ECB should first look at returning its 3-month lending operations back to their pre-crisis mode, he said, adding that it should also weigh up whether the additional 1-month lending it has provided through the crisis is still needed.

(Reporting by Paul Carrel; Editing by Ruth Pitchford)