German, French central bankers warn of overreaction to China

PARIS (Reuters) - French and German central bankers warned on Tuesday against overreacting to the signs of economic weakness coming from China that have helped trigger a bout of financial market volatility.

Speaking at a meeting of French and German central bank governors and finance ministers in Paris, Bundesbank Governor Jens Weidmann warned against painting everything black and said he did not expect a sharp deterioration in the Chinese economy.

"I agree with Jens Weidmann that financial volatility is somewhat excessive. I think we need to look through the short-term (market) swings," Bank of France Governor Francois Villeroy de Galhau told reporters.

Weidmann acknowledged, however, that the economic outlook had grown cloudier in recent weeks, fueled by uncertainty over China and weakness in oil and other commodity prices.

With clouds forming on the horizon for the economy, Weidmann said the outlook for inflation would be a subject of discussion at the European Central Bank's March governing council meeting.

"Inflation forecasts for this year will need to be substantially reduced," Weidmann said.

In December, the ECB forecast an inflation rate of about 1.0 percent for this year, but oil prices have continued to slide since then, weighing on the inflation outlook.

That has left financial markets anticipating that the ECB will step up its already exceptional monetary easing, which Weidmann has been opposed to in the past.

The ECB has an inflation target of close to but less than 2.0 percent.

(Reporting by Leigh Thomas; editing by Michel Rose and David Clarke)

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• US consumer confidence falls in August, Conference Board says
• Man detained over Berlin gun stash suspected of being part of Russian network, Spiegel says
• US spy chief visits Russia for meetings, media reports