Brussels, 06/04/2006 (Agence Europe) - At a meeting on 6 April, attended by Joaquin Almunia, Commissioner for Economic and Monetary Affairs, the Governing Council of the European Central Bank (ECB) decided to maintain the rate applied to main refinancing operations at 2.50% and that for the marginal lending facility and the deposit facility at 3.50% and 1.50% respectively. After the 25 point rise last month, the ECB now confirms that the risks affecting price stability are still growing, but hints that a further rise in eurozone interest rates is not as imminent as most market players had predicted.
Recent information confirms the assessment made of the need to adjust monetary policy to face the rising risks for price stability, Mr Trichet said. The prospects of growth have not improved in the eurozone and studies published and indicators show that they have improved for the first half of 2006, he explained, recalling that the world economy remains strong, investment sound and financing conditions highly favourable. There should also be more growth in consumption as the situation on the labour market gradually improves. Despite the impact of oil prices and global imbalance, the risks for growth appear more or less balanced over the short term.
The inflation rate, which fell to 2.2% in March (2.3% in February and 2.4% in January) should, however, remain below 2% in the short term, Mr Trichet analyses, seeing this evolution of prices administered and direct taxation as a significant threat for prices in 2006 and 2007. The effect of past gross rises could also entail a secondary effect on salaries and prices. He acknowledged that salary trends in the eurozone have remained moderate over the past few quarterly periods and growth in salaries should be contained. He went on to call on social partners to continue along this track. In response to a question, Mr Trichet confirmed that he was very cautious but so far they have not spotted any secondary effects representing a high risk. He also said they would be wrong to wait for this to happen before taking action.
Questioned at length on the future rise in interest rates, Mr Trichet corrected the predictions made by market players who expected that, in May, the strong probability spoken of when it comes to rates being put up during our next meeting does not correspond to the current feeling of the Governing Council. He told journalists: “It is true. I did not use the word “vigilance” in my press release as you were able to note”. A slight explanation which seems to put off expectations till June, when the Governing Council will be meeting in Madrid. In the present case, there is a slight correction on the market, said Mr Trichet, saying that, unless he is mistaken, there is a 100% probability that rates will rise by June at the latest. There is in fact “no rule that prevents us from putting rates up when we are in another country, and in June we shall have a load of information coming from all horizons”, he added (although market players have the impression that the ECB does not wish to change its rates when the Council is not held in Frankfurt). He went on to say: “I have said all that I wanted to say on May and on June. It is up to you to draw your own conclusions”.
From the budgetary point of view, the Member States ought to do more, as, if results for 2005 are on the whole better than expected, the forecasts for 2006 do not show any significant progress in budgetary consolidation for the eurozone as a whole, Mr Trichet stressed, recalling that putting off budgetary improvement when the economic environment is improving holds a risk for the medium term.