Brussels, 03/06/2004 (Agence Europe) - The Board of Governors of the European Central Bank (ECB) decided on Thursday to leave interest rates unchanged, marking a year of monetary status quo. The minimum submission rate applied to major refinancing operations remains at 2%. The interest rates for the marginal lending facility and for the deposit facility remain unchanged at 3% and 1% respectively. Furthermore, given the hike in oil prices, the ECB increased its forecasts for inflation in 2004 and 2005, and welcomed the decision by the Organisation of Petroleum Exporting Countries (OPEC) to raise its production ceiling.
"We have noted that economic growth has strengthened in recent months. At the same time, we have seen stronger inflationary pressure in the short term. However, we still feel that medium-term change remains in step with price stability", ECB President Jean-Claude Trichet told the press, in justification of the day's decision.
Mr Trichet explained that the ECB forecasted "continuing economic growth in the euro zone in the coming quarters", which should lead to "stronger growth in the coming year". According to internal forecasts, which remain, provisional, the ECB is predicting "real GDP growth in the euro zone between an average of 1.4% and 2.0% in 2004, then between 1.7% and 2.7% in 2005. The ECB acknowledges that this scenario is not without risks and uncertainties: -on the one hand, the current, robust pace of economic growth outside the euro zone and recent development in household consumption could lead to stronger growth; on the other, the high level of oil prices could endanger this.
According to Mr Trichet, the ECB recognises the fact that recent developments in oil prices have created considerable upward pressure on prices to the consumer. If this situation continues, inflation could be higher than originally anticipated, and exceed 2% for several months, warned the ECB President. In the medium term, the situation seems to remain favourable. In this way, inflation will come back below 2% in 2005. According to ECB forecasts, which were increased following the upsurge in oil prices, inflation should be between 1.9% and 2.3% in 2004, and between 1.1% and 2.3% in 2005. The ECB estimates that the dollar barrel price for crude will average around 34.6 dollars this year, falling back down to 31.8 next.
Answering questions from journalists, Mr Trichet pointed out that "we have called upon the petroleum producers to take responsibility for ensuring that the current price situation is only temporary". He said that OPEC's decisions to raise its production ceiling "is a step in the right direction". "Everybody knows what the consequences would be of oil prices climbing higher, or remaining at a high level", said the ECB President. Mr Trichet indicated that the ECB's job is to "avoid secondary effects (...), preventing us from reaching price stability and hindering sustainable growth". "This, obviously, is why we must remain vigilant (...). It is also why we are asking the social partners to behave responsibly under the current circumstances", he concluded.