ECB's Paramo says no regrets over rate rise: Media

MADRID: The European Central Bank has no regrets over raising interest rates in July despite market turmoil and rates remain accommodative, Executive Board Member Jose Manuel Gonzalez-Paramo said in a newspaper interview.

Asked if the ECB regretted raising rates to 1.5 percent in July now the euro zone crisis had deepened he said in an interview published on Sunday in regional newspaper La Voz de Galicia:

"Absolutely not. In July, the inflation rate was 2.5 percent in the euro area, which means short-term rates are negative and that monetary policy is still accommodative."

While risks to price stability were still on the upside, a rise in rates meant inflation expectations were anchored, he said.

The ECB policymaker also urged Spain to finish reform work in order to see its financing costs fall on debt markets. The country's achilles heel remained regional spending, and limits needed to be imposed.

Spain is struggling to assure investors it will be able to cut its public deficit in an environment of slow growth. Its 17 autonomous regions overspent in bonanza years for the economy before the crisis and are slowly beginning to rein in spending.

Gonzalez-Paramo also pressed the government to strengthen a labour reform by untying wages from inflation and to conclude its now-advanced banking reform.

"When all of that is done, the spread with Germany will fall back into place and there will be nothing to fear," he said.

He also repeated calls for euro zone policymakers to put in place agreements over a second rescue package for Greece, and that markets must realise that private sector involvement in the bailout would be a one-off.

Copyright Reuters, 2011