ECB urged to look seriously at rate level

By Noah Barkin

BERLIN (Reuters) - The European Central Bank needs to look seriously at current interest rate levels to safeguard its credibility and given high inflation expectations, Executive Board member Juergen Stark told German magazine Der Spiegel.

Asked in an interview with the weekly whether he was in favour of a near-term rise in rates, Stark said: "For reasons of credibility I think the ECB needs to look seriously at the current rate level given the high inflation expectations."

Commenting specifically on a looming rate decision in July, he added: "We will not let ourselves be locked in over a long period of time, rather we will decide on a case-by-case basis what is necessary to guarantee price stability over the medium-term."

ECB President Jean-Claude Trichet shocked markets earlier this month when he said a rate rise was possible in July but not a certainty.

Investors now expect a rise to 4.25 percent next month and another hike to 4.5 percent by the end of the year, but have trimmed bets for more aggressive action after Stark and others said policymakers were not mulling a series of rate increases.

Stark told Der Spiegel the ECB had taken a wait-and-see approach over the past year given uncertainties linked to turbulence in financial markets, but that now it must look forward.

"We have to look forward now and recognise that there are significant risks to price stability," Stark said.

He acknowledged there were different views within the ECB about how to proceed on monetary policy, but said there was a good chance the bank would "reach a conclusion rapidly".