DB President predicts inflation in EU to be below 2 per cent in 2008

Mumbai, Mar 16 (UNI) Deutsche Bundesbank (DB) President Prof Axel Weber has predicted that the inflation in all the European Union (EU) countries will be under two per cent.

Delivering a lecture on 'Eurosystem and its monetary policy strategy', hosted by the Reserve Bank of India (RBI) here today, Prof Weber said ''We see inflation at two per cent in 2008''. He cited decrease in energy prices globally as the prime reason behind his forecast.

Among various measures suggested by him to keep inflation under control in the European countries, one was to adjust the exchange rate of currency at an appropriate level. Exchange rates must be kept for at least two years within 'normal' fluctuation margins of the exchange rate mechanism, he said. Some of the other measures advised by him to check inflation included keeping budget deficit under three per cent and public debt less than 60 per cent.

Talking about long-term interest rates, he said it must be within two per cent of the average rate of the three countries with the lowest inflation rates in EU. Talking on the role to be played by a monetary policy the central bank of each country announces on regular basis, he said ''A monetary policy should not reflect the price shift from an occupied house to a rented house''. Later talking to reporters on the sidelines of the event, he agreed to the fact that volatility in the market was seriously down.

UNI