Brussels, 06/09/2007 (Agence Europe) - On Thursday 6 September, the European Central Bank (ECB) decided to keep eurozone interest rates on hold. The minimal tendering rate applied to main refinancing operations therefore remains at 4% and the rates of interest for the marginal lending facility and the deposit facility remain unchanged at 5% and 3% respectively. There is still a high risk for price stability but, given the “high level of uncertainty” on the financial markets, “it is appropriate to gather additional information and to examine new data before drawing further conclusions for monetary policy””, Jean-Claude Trichet said after the meeting of the ECB's Governing Council. The financial and stock exchange upheavals during August therefore put paid to the ECB's stated intentions in August to increase interest rates, at least for now (EUROPE 9482).
A rise in rates from October on seems to be ruled out, as the ECB president did not use the term “strong vigilance” on Thursday, a term that generally announces a rise in rates the following month, and the question of continued monetary austerity begun in December 2005 can also be looked at in the longer term. Nonetheless, monetary policy is still “on the accommodative side”, with sound growth prospects and upward inflationary risks, so that all options seem open at this stage. “It is up to you, observers and the markets, to make a judgement on the overall communication I have just made”, Mr Trichet told journalists, without explaining why he had not used the term “strong vigilance”. He went on to say: “If and when the time comes, I will use the words 'strong vigilance', of course”. The ECB will in any case monitor “very closely” all developments and plans to act “in a firm and timely manner” to ensure price stability, Mr Trichet repeated.
The economic activity of the eurozone continues to expand at a “sustained rate” despite the slight fall in growth during the second quarter (0.3%), Mr Trichet said. According to the forecasts made by ECB services, annual growth in the eurozone should be between 2.2% and 2.8% in 2007 and between 1.8% and 2.8% in 2008. Predictions for the year in progress are slightly down compared to the earlier forecasts, reflecting the hypothesis of a rise in oil prices and more restrictive financial conditions. When it comes to inflation, ECB services are tabling on a range of between 1.9% to 2.1% in 2007 and between 1.5% and 2.5% in 2008. Identical projections to those of June.
On the financial markets, however, the ECB's vigilance is essential. “We will continue to pay great attention to developments over the period to come”, Mr Trichet said, adding that it is still too soon to draw any lessons from recent events. The situation is “complex” and one must not seek “scapegoats”, he stressed, albeit underlining the lack of market transparency. The Governing Council has decided to launch an additional long term refinancing operation. (ab)