"There
will be a penalty but the backdrop of the strength of the economy, the corporations,
the institutions, is such that we are resilient," Paulson told the London
daily The Times.
ECB
governing council member Erkki Liikanen said it would take months for financial
markets to return to normal after a liquidity crunch, caused by banks'' reluctance
to lend to each other because of uncertainty over which may be hammered by losses
in the teetering US mortgage market.
"The
medium-term outlook for price stability remains subject to upside risks,"
the ECB said in its monthly bulletin.
But
"given a high level of uncertainty" in the wake of the US home loan
crisis, "it is appropriate to gather additional information and to examine
new data before drawing further conclusions for monetary policy," it added.
The ECB was
expected to raise its key lending rate on September 6, but president Jean-Claude
Trichet left it unchanged at 4.0 per cent amid warnings that increasing the cost
of borrowing in the eurozone would fuel tension within the global banking system.
Since
then, the euro hit a record high of 1.3927 against the dollar, which could help
stem inflation but also curb eurozone economic growth.
The
bank stressed that economic fundamentals were strong in the 13-nation zone and
that as a result, "the ECB''s monetary policy stance is still on the accommodative
side," which means it believed inflation could strengthen as well.
Additional
indirect taxes, higher oil and agricultural prices and wage increases were among
the factors that could push inflation higher, the bank said.
The
bank''s Governing Council would act "in a firm and timely manner" to
keep inflation in check and "pay great attention to developments over the
period to come," the bulletin said.
It
repeated the ECB growth forecast of 2.5 per cent this year, compared with a previous
forecast of 2.6 per cent, and 2.3 per cent next year, unchanged from its previous
outlook.
While
the US Federal Reserve was expected to lower its key interest rate to boost an
economy hit by defaults on the high-risk market for mortgages, many analysts now
expect the ECB to refrain from raising its rates further until early 2008 at least.
also see : General
reports on Economy