2010.09.2009:51:00UTC+00Financial Markets Not Source Of Risk For Inflation, ECB's Nowotny Says

Financial markets are currently not a source of danger for inflation, European Central Bank governing council member Ewald Nowotny said in an internet chat with readers of Austrian daily newspaper Der Standard on Monday.

The central bank targets below but close to 2% inflation in the euro area. However, the ECB will respond swiftly and effectively if required, Nowotny, who is also the governor of Austria's National Bank, added.

At least in a transitory phase, the new Basel III regulation may result in a reduction in credit provision dynamics, the policy maker said. Loans with high risk will be adversely affected by the regulation. Due to the improved risk weighting, credit categories that are problematic will be affected, he noted.

Last week, the Group of Central Bank Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision agreed to substantially raise the amount of capital that banks must set aside against potential losses.

Further, Nowotny said the Hungarian households that borrowed in Swiss francs are suffering from the depreciation of forint. Foreign currency loans were used mainly for residential purposes, he pointed out.

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