FRANKFURT (AFX) - European Central Bank chief economist Otmar Issing said inflationary risks are again tending to be "on the upside", while risks in economic growth are more on the downside. Speaking to reporters last night, Issing said: "risks are divided in such a way that on growth, it is more on the downside and on inflationary developments, it is more again on the upside."
He stressed wage increases will play a major factor in domestic inflation.
"If no disturbances occur, we expect that the inflation rate will gradually come down in the second half. In the course of 2002, it will fall below 2 pct," he said.
He said based on the ECB's two-pillar strategy, the second pillar -- which analyses a series of economic indicators -- has developed "less favourably" and that one can expect a "slight reduction of risks to price stability and nothing more than that."
"This is why we think that for the time being our monetary policy is appropriate," he said.
Issing said the ECB trimmed interest rates on May 10 because inflationary risks were lower and that monetary growth as well as credit developments have slowed down.
"We have cut the interest rate and we believed that our monetary policy has really been appropriate," he said, adding: "The way things stand for the moment, we think they are right."
He said an inflation rate of 2.9 pct -- which was the euro area April HICP rate -- is "too high", not only because it is above the ECB's reference rate of 2 pct but that a figure close to 3 pct would present difficulties in terms of controlling the second round effects.
Although the second pillar analysis forecast a slightly lower inflation in one or two years, this should not be seen as an "all-clear signal."