Brussels, 06/07/2006 (Agence Europe) - On Thursday, the president of the European Central Bank Jean-Claude Trichet declared to the press after a meeting of the bank's board of governors that they had decided to leave the ECB main lending rates unchanged. The minimum bid rates applied to main refinancing operations would therefore remain at 2.75% and the marginal lending facility and the deposit facility will remain unchanged at 3.75% and 1.75% respectively. Trichet also reiterated that the rise in rates last month was justified (EUROPE 9207) and pointed out that he would remain “very vigilant” in future, which cast a shadow of doubt on the next possible rise. If, as affirmed eight months ago, the ECB is not creating a series of successive rises, it has methodically tightened monetary policy every three months (December 2005, March, 2006, and in June 2006) to the point that such an announcement in August would be a change of rhythm that market actors were even beginning to predict. What is sure, is that in August the ECB will break with some of its old habits. The 18 members of the board of governors, have arranged to meet up rather than organise discussions via tele-conferencing as is usually the case for this time of year. This meeting will also be followed by a press conference, when there is not usually one in August. Changing practices that therefore appear to be preparing the ground for a communication on a new rate rise, which Mr Trichet has, nevertheless, refused to comment upon except for answering some questions put by journalists.
Mr Trichet immediately indicated that, “information had confirmed that the rate rise was justified to contain the risk on price stability” following the 25 point rise last June. Nonetheless, he stated that “monetary policy continues to be manageable”. The ECB president said that he wants to be “very vigilant” and pointed out that economic growth had resumed a greater and sustained dynamic in the first half of 2006, that global activity remained strong and investment was expected to resume. Whereas consummation in the Euro zone should “also gradually get stronger in time” and the employment situation “continued to improve” the level of inflation remained 2.5% in June, unchanged on the previous month but higher than in April (2.4%).
In the second part of 2006 and as an average for 2007, Mr Trichet again pointed out that inflation rates are expected to continue to go above the stability price objective of 2%. He also pointed to more price rises in oil, repercussions from more significant hikes of the past and an increase in administered prices and indirect taxes, as well as effects of a second round on wages, as the main risks in the medium term.
After having announced that the Council (in replies to the press) of governors would be meeting up in person on 3 August for “more complete interaction”, Mr Trichet provided assurances that “all our decisions depended on facts and figures” and that they would consider all available information. He pointed out that they would march forward as they had done in Madrid last month where they were able to take decision outside the ECB HQ in Frankfurt. In a reply to a storm of questions, he said that they would not make commitments on the scale or pace of modifications. Nevertheless, he suggested that they should not be expecting a change of over 25 base points. “No, I don't think we'll be driven to other things than the decisions we've already made”. He refused to say anything on the possible time frame for this intervention.
Also asked about his relationship with Jean-Claude Juncker, who wants closer cooperation between Eurogroup, the Commission and the ECB (EUROPE 9221), Trichet pointed out that “I have the highest opinion for Mr Juncker, who is an excellent president of Eurogroup”.