Brussels, 04/11/2004 (Agence Europe) - For the eighteenth consecutive month, the European Central Bank (ECB) has decided to keep its reference rates unchanged. The Board of Governors decided on Thursday to keep the minimum submission rate applicable to main refinancing operations at 2%, and the interest rates of the marginal lending facility and of the deposit facility at 3% and 1% respectively. "High share prices and oil prices have had a visible direct impact on consumer prices this year, and inflation is set to remain significantly above 2% in the coming months", Jean-Claude Trichet told the press, adding that "in the medium term, underlying inflationary pressure remains contained in the euro zone".
The ECB President pointed out that although world economic growth has slowed, "euro zone exports continue to benefit from positive global demand", and that internally, "investment will be supported by favourable funding conditions or improved company profits". Private consumption may also intensify, once the employment market's prospects become clearer (in its planned autumn forecast, the Commission is predicting a fall in unemployment in 2006: see EUROPE of 28 October, p.11). Given the risks presented by current high oil costs for price inflation and growth, we must "remain extremely vigilant" about the effects, especially on wages, warned Mr Trichet. Mr Trichet swept aside all concerns about stagnation, stating that this was "not our analysis, at least for the time being", but the indirect effects of the increase in barrel prices can be seen in the recent increase in inflation (2.5% in October), and figures announced for industrial production prices. Pointing out that his service's forecasts will be announced within a month, Mr Trichet elected to remain cautious, and "not give an answer about the predicted average for 2005". In all likelihood, "the rise in the consumer price index will continue, possibly even stronger in the next few months", he said.
Furthermore, although the policies of certain Member States are encouraging, other cases suggest that the commitments taken in line with the Stability Pact may not be adhered to (the Commission quoted Germany, France, Italy, Greece and Portugal among the countries at risk for 2005). "It is therefore vital for national budgets for 2005 to prioritise budgetary cleansing, because this is very much needed", said Mr Trichet. When asked whether a rising value of the euro against the dollar would be of any advantage in slowing the hike in barrel prices, Mr Trichet once again spoke out against excessive exchange rate volatility, saying: "unstable movements on the markets are not conducive to economic growth". He expressed appreciation for the "re-affirmation by the American treasury secretary that the US policy on this remains a strong dollar".