Brussels, 05/11/2009 (Agence Europe) - On Thursday 5 November, the Governing Council of the European Central Bank (ECB) decided that the interest rate of the principal refinancing operations and those of the marginal loan facility and the deposit facility will remain unchanged, at 1%, 1.75% and 0.25% respectively. Although economic activity is set to improve in the second half of this year and inflation remains moderate, "the current rates remain appropriate", said Jean-Claude Trichet after the meeting. With an inflation rate of -0.1% in October, the reduction in prices has been less than in September (-0.3%), the president of the ECB pointed out, anticipating a return to positive figures in the coming months. Medium-term inflationary pressure will be "low" and price levels in line with the ECB's objective (below but close to 2%), Mr Trichet told the press.
"The Governing Council expects the euro area economy in 2010 to recover at a gradual pace, recognizing that the outlook remains subject to high uncertainty", he said. The eurozone is likely to benefit from a resumption in exports and budgetary support measures in place virtually everywhere, which means that the quarterly growth in GDP is likely to be positive. However, as the Commission pointed out in its autumn economic forecasts published two days earlier (EUROPE 10011), the upturn in the economy remains largely based on temporary factors and uncertainty prevails. According to the ECB, the risks for this prospect remain overall well-balanced. Growth may increase as a result of a greater than anticipated effect of the budgetary support measures, faster return to confidence (in the event of a less marked deterioration in the unemployment figures) or if foreign demand turns out to be stronger than expected. On the other hand, it could suffer in the event of greater and longer negative interaction between the financial sector and the real economy, further increases in the prices of oil and raw materials, and intensification of protectionist or corrective pressure of the global imbalances.
The president of the ECB also signalled that the process of the phasing out of the exceptional support measures set in place at the beginning of the crisis to support credit will begin. "In the future, and taking account of the improved conditions in financial markets, none of our liquidity measures will be as important as in the past", said Mr Trichet, providing more clarity on the implementation of the exit strategy for the extraordinary measures next month. Concerning the end of 12-month refinancing operations, he simply observed that the markets no longer anticipated any renewal of this kind of measure after those set in place in December. "I won't say anything to dissipate the current mood on the market", he said, "but the decision will be taken by the Governing Council at its next meeting, in a month's time".
Mr Trichet also said that the deficit levels of the member states make it necessary to start consolidating public finances no later than 2011. He feels that there is no contradiction between sustainable public finance policies on the one hand and economic upturn on the other because without a clear and credible exit strategy, the situation could undermine confidence and weaken the basis for a return to sustainable growth. The conclusions of the last Ecofin Council, which specify 2011 at the latest for a return to budgetary consolidation and recommend an annual adjustment of at least 0.5% of GDP, "represent the minimum necessary for all countries in the eurozone", he stressed, calling on the governments to communicate and implement "ambitious exit and budgetary consolidation strategies on the basis of realistic growth hypotheses, based strongly around expenditure reforms". He went on to state, aimed at Germany in particular, that "tax reductions should only be considered in the medium term, once the countries have regained enough budgetary room to manoeuvre". (A.B./transl.fl)