Brussels, 08/02/2007 (Agence Europe) - The European Central Bank (ECB) decided on Thursday 8 February to keep interest rates in the eurozone unchanged. Rates rose in December 2006 but this time the benchmark rate has been kept at 3.5%. The Governing Council decided that 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 3.50%, 4.50% and 2.50% at respectively. After the Governing Council meeting, attended by Commissioner Almunia, the President of the ECB, Jean-Claude Trichet, said 'strong vigilance remains of the essence so as to ensure that risks to price stability over the medium term do not materialise.' He told reporters that any fall in inflation would be temporary. Trichet immediately added that it was vital to keep an eye on the longer term to ensure inflationary trends are kept at around the 2% level. When asked by a reporter whether the talk of strong vigilance was a coded message that a rate rise could be expected next month, Trichet said that went without saying.
'Our monetary policy remains accommodative, with the key ECB interest rates still at low levels, money and credit growth vigorous, and liquidity ample by all plausible measures,' commented Trichet. The latest indicators suggest that the economic expansion has continued into 2007 and remains 'solid and broad-based' and 'conditions remain in place for the euro area economy to continue to expand at rates around potential. Global economic growth… remains robust, providing support for euro area exports. Domestic demand in the euro area is expected to maintain its momentum. Investment should remain dynamic… consumption should also continue to gradually strengthen over time, in lien with developments in real disposable income, as labour market conditions - in particular employment growth - continue to improve.'
'With regard to price developments, it is essential to stress the importance of taking a medium-term perspective and to look through the possible volatility of inflation rates over the course of 2007,' explained Trichet. He explained that in the very short term, 'it appears that the changes in VAT in a large euro area country (Germany, Ed.) were not fully reflected in prices in January. Thereafter, it should be noted that on the basis of current prices for oil and oil futures and previous oil price developments, significant favourable base effects may progressively lead to lower inflation rates in the spring and summer. However, these effects would be temporary. Later in 2007 inflation rates are expected to rise again as a result of unfavourable base rates. The medium to longer-term outlook for price stability remains subject to upside risks (with) a stronger pass-through of past oil price rises into consumer prices than currently anticipated… More fundamentally, stronger than currently expected wage developments post substantial upward risks to price stability… It is therefore crucial that the social partners continue to meet their responsibilities. In this context, wage agreements should take into account productivity developments while recognising the still high level of unemployment and price competitiveness positions. Indeed, the Governing Council will monitor the upcoming wage negotiations in the euro area countries very carefully.' Trichet added that the ECB had a clear message to send out about the inflationary dangers of high wage settlements. (ab)