Weidmann: Central Banks Must Shift Focus To Price Stability

The euro slipped moderately on Tuesday morning as investors looked to the region's finance ministers for clues about the eurozone's financial future.

Worrisome inflation data released earlier in November caused widespread concern that the region could fall into a period of deflation if the European Central Bank doesn't intervene.

Bundesbank President Jens Weidmann spoke on Monday at Harvard University about the obstacles central bankers face as they make policy decisions. The Wall Street Journal reported that Weidmann emphasised the fact that government finance issues and national financial security have been weighting on the worlds central bankers and diverting their attention away from what should be the banks' primary focus, price stability.

After the ECB chose to lower its main interest rate to a record low 0.25 percent at its November meeting, many wondered if the bank would take further steps to control the region's declining inflation figures.

Weidmann's comments on Monday indicate that he would be opposed to the bank taking further measures in order to stimulate the economy, and that he will be in favor of raising the bank's interest rate as soon as inflation figures warrant it. With inflation data due out at the end of the week, investors will be closely watching for any improvement in the figure for clues about the bank's actions at next week's December meeting.

Weidmann also commented on the eurozone's banking union, a work in progress. The ECB is set to become the banking supervisor for the region's banks next year, but with much contention from Germany. Weidmann said the bank needs to separate its role as bank supervisor from its responsibility to set interest rates. If the bank is not able to do so, he said the banking union will likely require an independent supervising institution.

BY Laura Brodbeck