ECB keeps rates on hold as it tackles inflation
Friday, May 9, 2008
EUROPEAN Central Bank president Jean-Claude Trichet said policymakers had decided unanimously yesterday to leave interest rates at 4.0 per cent, as the bank tackles high inflation while economic growth is slowing.
In a statement little changed from the previous month's, Trichet said the ECB's current policy stance would help it to achieve price stability, although inflation was likely to remain high for some time against a backdrop of turbulent markets.
Euro zone inflation eased slightly in April to 3.3 per cent from the previous month's record high, but remains well above the ECB's 2 per cent ceiling and appears already to be taking a toll on consumer spending and confidence.
Trichet said economic growth fundamentals were sound, but there was a danger of a sharper slowdown and higher inflation in the future, he added. "We were unanimous in deciding to leave rates as they are," he told a news conference. "There was absolutely no call for anything other than (that) decision."
Over the past month, market interest rate expectations have been buffeted by remarks from ECB policymakers that suggested a split on the best response to the dilemma of tackling inflation while growth slows.
Asked if the ECB had permanently ditched references to "vigilance", a word it used in the past to hint at higher interest rates, Trichet said it could make a reappearance but not now.
"I have absolutely no reason to say that vigilance has disappeared from our potential vocabulary. It is an expression when we can certainly utilise when we judge it is time to utilise it."
Trichet declined to comment on market rate expectations, beyond reiterating that the current rate stance was appropriate.
"The firm anchoring of medium term inflation expectations remains the highest priority to the Governing Council," he said. "We believe that the current monetary policy stance will contribute to achieving this objective."
The euro recovered against the US dollar during the news conference, after Trichet seemed to be less dovish than currency traders had expected.
This month's ECB rate meeting was hosted by the Bank of Greece, one of two meetings a year which takes place away from the ECB's Frankfurt headquarters.
Trichet said there could be no complacency on inflation, and that it was too early to draw encouraging conclusions from April's drop in inflation.
"Latest data and survey information on economic activity confirms previous expectations of moderate but ongoing growth in the first half of 2008," Trichet said. "Overall the euro area economy has sound fundamentals."Reuters
In a statement little changed from the previous month's, Trichet said the ECB's current policy stance would help it to achieve price stability, although inflation was likely to remain high for some time against a backdrop of turbulent markets.
Euro zone inflation eased slightly in April to 3.3 per cent from the previous month's record high, but remains well above the ECB's 2 per cent ceiling and appears already to be taking a toll on consumer spending and confidence.
Trichet said economic growth fundamentals were sound, but there was a danger of a sharper slowdown and higher inflation in the future, he added. "We were unanimous in deciding to leave rates as they are," he told a news conference. "There was absolutely no call for anything other than (that) decision."
Over the past month, market interest rate expectations have been buffeted by remarks from ECB policymakers that suggested a split on the best response to the dilemma of tackling inflation while growth slows.
Asked if the ECB had permanently ditched references to "vigilance", a word it used in the past to hint at higher interest rates, Trichet said it could make a reappearance but not now.
"I have absolutely no reason to say that vigilance has disappeared from our potential vocabulary. It is an expression when we can certainly utilise when we judge it is time to utilise it."
Trichet declined to comment on market rate expectations, beyond reiterating that the current rate stance was appropriate.
"The firm anchoring of medium term inflation expectations remains the highest priority to the Governing Council," he said. "We believe that the current monetary policy stance will contribute to achieving this objective."
The euro recovered against the US dollar during the news conference, after Trichet seemed to be less dovish than currency traders had expected.
This month's ECB rate meeting was hosted by the Bank of Greece, one of two meetings a year which takes place away from the ECB's Frankfurt headquarters.
Trichet said there could be no complacency on inflation, and that it was too early to draw encouraging conclusions from April's drop in inflation.
"Latest data and survey information on economic activity confirms previous expectations of moderate but ongoing growth in the first half of 2008," Trichet said. "Overall the euro area economy has sound fundamentals."Reuters
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