Brussels, 12/04/2007 (Agence Europe) - On Thursday the European Central Bank (ECB) decided to keep Eurozone interest rates at their previous levels. Minimum bid rates applied to refinancing operations therefore remains at 3.75%, interest rates for the marginal lending facility is 4.75% and the facility deposit rate stands at 2.75%. Following last month's hike (EUROPE 9382), this status quo was expected by market actors, who are also counting on renewed monetary tightening in June. At the end of the Governing Council meeting, Jean-Claude Trichet indicated, “I would not say today anything that would be aiming at changing expectations for the month of June”. He therefore reinforced market expectations in this respect. The ECB president explained that the ECB would be closely following developments in the situation. He did not refer to any heightened vigilance, which is generally mooted when a hike is imminent and therefore implied that this was not envisaged in May.
Available information, Mr Trichet initially explained, backed up the reasons behind their decision to raise rates in March and confirmed that rises in rates continued to impact on medium term price stability. Trichet said that “very close monitoring” was necessary and that the ECB would continue to “act in a firm and timely manner to ensure price stability”. He also said that Eurozone monetary policy, “continues to be on the accommodative side” with key interest rates being moderate and money and credit growth being vigorous and liquidity in the Eurozone being ample.
Robust growth in 2006 (2.7% in the Eurozone, see other article) continued in the first half of 2007, explained Trichet. Internal demand was relatively strong in the Eurozone and was expected to continue, with investment expected to maintain its dynamic and consumption strengthening over time in line with developments in real disposable income and job creation. In the longer term, risks are on the downside and mainly due to, “fears of a rise” in protectionist pressures, the possibility of further increases in oil prices and concerns about possible disorderly developments owning to global imbalances”. In reply to estimates published by other international organisations, notably the International Monetary Fund (IMF), the ECB president said at this stage he could not say whether it was necessary to revise Eurozone growth potential upwards. Although the IMF has estimated that European growth could slightly supersede US growth this year, Trichet stuck to the current figures, which assessed a rise in GDP of between 2.1% and 2.9% for 2007 and between 1.9% and 2.9% for 2008. the next forecasts from his services will be available in June.
Risks of inflation are still upward. This is mainly due to wage rises that are higher than expected. From the inflation rate of 1.9% in March this year, the Eurozone annual rhythm of inflation is expected to fall in coming months, before rising towards the end of the year to settle around 2% again, repeated the ECB president, who will be closely following wage negotiations in Eurozone countries very closely. Mr Trichet acknowledged that they would be appealing to social partners to be as responsible as possible by taking situations that are not necessarily identical into account. He also said that for the whole of the Eurozone, we can certainly say that we will be following what happens in this area very closely”. Wage moderation remains essential if they want to preserve purchasing power with these wages, explained Trichet. He pointed out that people most exposed to the risks of inflation were the poorest. (ab)