Brussels, 12/01/2006 (Agence Europe) - Following the increase of 25 basis points in December 2005, the European Central Bank (ECB) decided, on 12 January, to keep interest rates in the euro zone unchanged, said Bank President Jean-Claude Trichet after the meeting of the Council of Governors. The minimum bid rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 2.25%, 3.25% and 1.25% respectively. Mr Trichet told reporters that “The information which has become available since December 2005 supports the assessment that an adjustment of our very accommodative monetary policy stance was warranted” to ensure medium term stability and anchor inflation expectations (see EUROPE 9090 for last rate rises). “Maintaining price stability over the medium term is our guiding principle, and we will constantly apply it when examining new information, making our judgments and taking decisions”, he repeated once again.
When questioned by the Press, Mr Trichet said that the day's decision had been “unanimous” because all the information since December confirmed their working hypotheses. He did not see any need to change December projections at this point. He pointed out that real GDP growth had improved in the second half of 2005 (+0.6% in the third quarter as compared with 0.4% in the second). Looking further ahead, “conditions remain in place for sustained growth of economic activity” in line with staff projections and other available forecasts, announced Mr Trichet. However he admitted that risks to this outlook continued to lie on the downside and related to high and volatile oil prices, concerns about global imbalances and the level of consumer confidence in the euro area, “although the latter is improving”.
Annual HICP (Harmonised Index of Consumer Prices) inflation was 2.2% in December, compared with 2.3% in November and 2.5% in October, due to “some relaxation of earlier tensions in oil and petrol markets”. Nevertheless, annual HICP inflation rates are expected to remain at elevated levels over the short term, mainly on account of the most recent increases in oil prices, noted Mr Trichet, adding that, “indirect effects of past oil price rises on other components of the price index may gradually materialise, and already announced changes to administered prices and indirect taxes can be expected to have an upward impact”. Mr Trichet gave assurances that the Council of Governors would “continue to monitor very closely all developments with respect to risks to price stability over the medium term”. It was, he said, like a compass, and they had their eyes on the needle. Wage increases had remained moderate over recent quarters and Mr Trichet called on social partners to continue to meet their responsibilities “also in context of a more favourable economic environment”. In response to a question, he said he was talking about real, not nominal, wage increases. Thus, by defending price stability, they were also defending purchasing power, he stressed.
Pressed to respond to the forecasts of various stakeholders of a rate increase next March, Mr Trichet refused to linger over the future, stating simply that the message of their last press conference had been well received by the markets. At the time, he had explained that the Frankfort-based institution had no intention in engaging in a series of on-going increases, but would respect its mandate to maintain price stability at all times (see EUROPE 9080).
Mr Trichet also said he hoped that the Council's forthcoming assessment of updated stability programmes and their implementation would be the opportunity to forcefully underpin the commitment to sound fiscal policies and the rigorous implementation of the Stability and Growth Pact (see EUROPE 9107 for Commission analysis of first programmes). “This would have an important positive effect on confidence”, declared the President of the ECB.