Brussels, 04/05/2005 (Agence Europe) - At the meeting which took place in Berlin on Wednesday, the Council of Governors of the European Central Bank (ECB) decided not to change the level of rates for the euro zone. The decision was anticipated and due to the poor economic growth perspectives and low inflation. The rates therefore remain at 2% for principle refinancing operations, 3% for the marginal loan facility and at 1% for the deposit facility. “We continue to note that there is no tangible sign of increasing underlying inflationary pressure in the euro zone. The exceptionally low level of the interest rates (…) provides considerable support to economic activity in the euro zone. At the same time, constant vigilance is needed on risks which threaten price stability”, said Jean-Claude Trichet, the president of the ECB, to justify the continuing status quo (the 23rd time in a row) of rates.
On economic growth within the euro zone, Mr Trichet said that recent data showed a downward trend overall. He feels that the potential risks on growth, most particularly oil prices, which remain high, “appear to have partially materialised over the past few months”. Visibly optimistic, Mr Trichet added that looking beyond the short term, “conditions remain in place for stronger real GDP growth”. In other words, he added, in answer to a question from the press, “the conditions are there to ensure that our growth gradually comes into line with what we might call the growth potential of the euro zone”. Euro zone exports continue to be supported by foreign demand and, on internal demand, investment is set to benefit from extremely favourable financing conditions. Furthermore, growth in consumption should follow the expected development of disposable income. “The risks for economic growth continue to be related to oil prices and global imbalances”, the ECB president pointed out.
On inflation, Mr Trichet pointed out that the increase in prices in the euro zone stood at 2.1% in April, the same level as for March (Eurostat estimations). According to the ECB, inflation is set to remain close to this level “over the next months”. Salary increases have remained contained over the last few quarters and, against a backdrop of moderate economic growth and a weak labour market, this trend is likely to continue, in the ECB's view. Mr Trichet's conclusion is that “we see no significant evidence of underlying domestic inflationary pressures building up in the euro zone, so that inflation rates should develop in line with price stability”. He answered questions about a possible fall in rates: if the ECB reduced the rates, the market rates would increase “because we would lose our credibility with economic agents, market operators, observers, investors and savers, who would never again trust us to ensure price stability in the long run”. “This would increase their expectations of inflation, which would be reflected in the interest rates. We would achieve the exact opposite of what we set out to do”, Mr Trichet warned.