European Central Bank Vice President Vitor Constancio said officials remain determined to fight inflation, even after raising borrowing costs for the first time in almost three years.

The ECB’s April 7 decision to raise the key rate by 25 basis points to 1.25 percent “does not mean that we have decided already that we will rush in a series of increases but it’s certainly a signal of our determination to control inflation in the euro area as a whole,” Constancio said in an interview at a conference in New York on Saturday.
Inflation in the euro region accelerated more than previously estimated in March, quickening to 2.7 percent and breaching the ECB’s 2 percent limit for the fourth month. Policy makers are concerned that this will feed into wage demands as the economy strengthens. Economists forecast two more interest- rate increases by the end of the year, bringing the key rate to 1.75 percent, a Bloomberg News survey shows.
A number of policy makers, including Executive Board members Juergen Stark and Lorenzo Bini Smaghi, have indicated they favor a gradual increase in interest rates. The ECB is balancing the need for tighter policy in countries like Germany, whose economy is booming, against the risk that higher rates could exacerbate the sovereign debt crisis afflicting peripheral euro-area nations like Greece, Ireland and Portugal.
“The figures for the first quarter are going to be good,” Constancio said. That “indicates that the problems in the peripheral countries have not affected the strength of the recovery,” he said.
------------------German unemployment
Euro-area exports rose 1.6 percent in February from the previous month, a report showed on Saturday. In Germany unemployment has dropped to the lowest in almost two decades and specialty chemicals maker Lanxess AG boosted prices this month to offset higher raw-material costs.
Even so, Greek officials are struggling to convince investors that the country won’t have to renege on its debts after getting a 110 billion-euro ($160 billion) bailout last year from the European Union and the International Monetary Fund. Greek bond yields soared to a record after German Finance Minister Wolfgang Schaeuble said in an April 14 interview that Greece may have to renegotiate its debt burden.
Constancio said he doesn’t “think any restructuring is really justified” and that Greece and Ireland will have to implement their austerity programs. “I hope that after that markets will consider the situation as being more stable.”
-------------------Portugal bailout
In a later interview last night, Constancio said that “I certainly think it is very likely” that Portugal will be the last country to require financial aid.
“That’s what we hope markets will appreciate, that Europe has created the mechanisms to deal with the problem and that some more vulnerable situations were dealt with,” he said. “I think so, and I hope that markets will think the same.”
He also said that it’s too early to tell when the ECB will phase out its non-standard measures, saying that policy makers “depend on the evolution of the situation and our assessments.” The ECB has “already dismantled part of them and they are temporary by nature.”
Questioned on the ECB’s policy on financial institutions that have become dependent on the central bank’s funding, so- called “addicted banks,” Constancio declined to comment.
“The whole situation is changing,” he said. “It has been said” by President Jean-Claude Trichet, “when we have something to say, we will say it, and not before.”
(Source: Bloomberg)