Brussels, 01/12/2005 (Agence Europe) - Having broadly prepared everyone for this change, the European Central Bank (ECB) decided to tighten up its monetary policy on 1 December, thus putting an end to two and a half years of interest rate stability in the euro zone. The Council of Governors increased its reference rates by a quarter of a percentage point, the minimum submission rate applicable to principal refunding operations will rise to 2.25%, that of the marginal loan facility to 3.25% and that of the deposit facility to 1.25%. Despite calls for restraint launched by the finance ministers of the euro zone and international organisations such as the OECD, the Council of Governors "notes that the level of risk for price stability was such that this slight correction was required", its president, Jean-Claude Trichet, told the press on Thursday. At their new level, rates will remain low and "monetary policy remains accommodating", he said, adding that the ECB "is not about literature", it fulfils its mandate and bases itself on facts and figures, and that is not influenced by recommendations made to it. "Our decision will help to keep medium and long-term inflation expectations firmly anchored to the definition of price stability", which is a "prerequisite for the monetary policy to make a continuous contribution to growth in the euro zone", he said. Furthermore, the ECB has increased its growth and inflation estimates in comparison with the September figures. The euro zone is set to show growth between 1.2% and 1.6% in 2005 and between 1.4% and 2.4% in 2006, whilst inflation will be at a level between 2.1% and 2.3% this year, and between 1.6% and 2.6% next year.
In the view of Commission Almunia, who took part in Thursday's meeting in Frankfurt, "the increase in interest rates does not change the Commission's growth forecasts and is important in order to contain inflation expectations in the medium term. I also continue to believe that all the conditions are in place for an upturn in internal demand, and this was confirmed by yesterday's publication of the growth in GNI in the third quarter of this year".
Although several opinions were expressed within the Council of Governors, the decision was reached unanimously. "Some may have thought that we could have gone further, others that we could have waited a bit longer", but after the decision, everybody "rallied to this decision, which was taken unanimously", explained Mr Trichet. Answering a question from the press about forthcoming decisions on rates, he pointed out that "no decisions have been taken in advance by the Council to commit to a series of increases" one after the other. This decision was taken today "because we feel that it is in line with our mandate" to maintain price stability, and it allows us to remain credible, but "we will see what the next lot of facts and figures are like", on which the Council of Governors will take a position when the time comes, he added. We are not "influenced, a priori (either one way or the other), by votes or recommendations" that come our way, said Mr Trichet. Having "the good fortune to live in extremely vivacious democracies in Europe, which work well and do not mince their words", we try to be "as transparent and as predictable as possible", he said, pointing out that he "addresses the European Parliament just as often as Greenspan addresses Congress in Washington". When asked about the specific impact of the increase in rates on the weakest economies of the euro zone, Mr Trichet confirmed that the ECB took the zone as a whole, rather than a sum of its parts, and declared: "it is the 311 million citizens who matter to us". In answer to a question about underlying inflation, he replied "it is general inflation which we follow, as, incidentally, do the European citizens", because underlying inflation is "not necessarily the best indicator to forecast general inflation" ("if we exclude all the prices which are on the increase, and take only those which are falling, this does not necessarily give a balanced image").
On the communication strategy of the ECB, Mr Trichet conceded that he had not discussed the speech he gave two weeks ago in Frankfurt with the other members of the Council of Governors. In this speech, which was addressed to a conference, he intimated that the ECB was prepared to increase its rates slightly. However, he added, I only voiced, as president, "the feeling of the Council of Governors", which, therefore, had no reason to be surprised. He reiterated: "we are extremely proud to describe ourselves as one of the most predictable central banks in the world, and we will continue to be so".
Moreover, the Council of Governors welcomed the presentation of the national programmes of the Member States within the framework of the revised Lisbon strategy, which explain "the specific key challenges of the various countries and structural measures for growth and employment". This is a "fortunate commitment on the part of the Member States (...), which may breathe new life into the structural reforms", he anticipated, going on to criticise the fact that in countries in which budgetary imbalances exist, "the speed of cleansing is disappointing, and there is a strong risk that the commitments will not be fulfilled".