Malta’s economy growing at ‘reasonable rate’, oil prices posing ‘risks’ to eurozone - Bonnici

Speaking on the margins of the informal gathering of Eurozone  finance ministers and central bankers which opens this morning in Copenhagen, Malta's Central Bank Governor and European

Central Bank Governing Council member Josef Bonnici told Market News in a vast interview, that financial markets are in an  improved state, but he was reluctant to pronounce the worst of the financial crisis past.

The economic outlook for the Eurozone is "still uncertain," he said. "The forecasts are indicating a weak first half, but what comes after that is obviously less clear."

"Energy prices are a dampener on economic activity," Bonnici said, adding however, that there was hope high oil prices won't last too long and the ECB will watch out for any pass-through impact.

"There's a certain subdued impact from oil prices [on inflation] and one has to see whether this remains the case."

Under its price stability mandate, the ECB targets inflation at less than but close to 2%. After its last rate meeting in March, the ECB raised its inflation forecast for this year. Citing upside risks in the near term coming from higher than expected oil prices, the ECB now projects that inflation will remain above the 2% mark this year versus its earlier forecast that it will slow below that target in the course of 2012.

Bonnici praised Italian Prime Minister Mario Monti for Italy's progress with addressing structural reform but warned that implementation will remain key to improving the country's competitiveness.

Bonnici said Spain's sovereign bond yields didn't necessarily fall because of the ECB's injection of a massive amount of liquidity in the euro-zone's banking system.

"It may be that yields could have gone down because of that but the fact is that the situation in Spain is much more sustainable now in terms of the debt and deficit aspects," he said.

The ECB and the European Commission, however, are monitoring the situation there closely in any case, MNI quoted Bonnici as saying.

He defended the ECB's liquidity injections, saying that "this is a worldwide basic principle of monetary policy at this stage." The ECB's measures are aimed at easing financial stress in the banking system but cannot solve fiscal problems, which governments should face up to do, he added.