Brussels, 31/08/2006 (Agence Europe) - The Governing Council of the European Central Bank (ECB) decided on 31 August to keep the interest rates of the euro zone unchanged. The minimum bid rate applied to refinancing operations therefore remains at 3%, the marginal lending facility at 4% and the deposit facility at 2%. Information received since the early rise in interest rates has “further underpinned the reason behind our decision to increase interest rates earlier this month”, Jean-Claude Trichet said during the press conference after the meeting, which was attended by Commissioner Joaquin Almunia. Recalling that “strong vigilance remains of the essence” to ensure that upside risks to price stability are contained, the ECB president stressed that “if our assumptions and baseline scenario continue to be confirmed, a progressive withdrawal of monetary accommodation will remain warranted”. This is a recurrent idea expressed by Mr Trichet that many economists consider as anticipation of a further rise in rates in October, a rise that would thus be according to the pace begun in August of a rise every two months (EUROPE 9245). The ECB is of course open-minded, Mr Trichet told reporters, stressing that they are doing what is necessary according to the analysis made and that they remain on constant alert. He was also pleased that they had held a complete and indepth discussion with all colleagues and that the decision reached was finally “unanimous”.
During the second quarter 2006, the GDP of the eurozone was up 0.9% after a 0.6% rise in the first quarter, which confirms that, according to the latest forecasts from ECB services, economic growth is “broadening and becoming more sustained”. Information on the third quarter shows that the eurozone economy should continue to grow “at around the potential rate”, Mr Trichet explained, announcing upward revision for the 2006 and 2007 forecast range (which take Slovenia into account for the very first time).
Projections for the rise in average annual real GDP growth foresee a range between 2.2% and 2.8% in 2006, and between 1.6% and 2.6% in 2007. The risks for growth depend on future energy price developments, global imbalance and protectionist measures, especially since suspension of the Doha Round talks, said Mr Trichet.
At 2.3% in August 2006, the inflation rate has indeed dropped in comparison with July (2.4%), but it is expected to remain above 2% for the remainder of the year and into 2007. ECB staff project a price rise of between 2.3% and 2.6% in 2006 and between 1.9% and 2.9% in 2007, corresponding to the upper limits of their previous forecasts and one which is above their forecast for next year. This is due, essentially, to the risks related to high oil prices, a stronger pass-through of past oil price increases than anticipated and, “more fundamentally”, stronger than expected wage developments. “… upside risks to price stability prevail” in the medium to long term, concluded Mr Trichet, seeing these fears confirmed in the rapid rates of monetary and credit expansion, within a context of ample liquidity.
Questioned on the risks of stifling growth, Mr Trichet recalled the mandate of the Bank. We contribute to sustainable growth by doing what has to be done every time. We would hinder growth if we abandoned our mandate to maintain price stability, he said, stressing, “We have a bearing in our compass (price stability) which we have to be constantly watching”. Some people may be looking at other objectives, “we have only one”: price stability.
Every country should take advantage of the current economic upturn to consolidate budgetary balances within the agreed timescales, in particular those countries which are the subject of excessive debt procedures and showing high debt-GDP ratios, Mr Trichet felt. In response to a question on the budgetary situation in Italy, he contented himself with saying this was one of the countries called on to do their duty according to their earlier commitments.