Brussels, 04/10/2007 (Agence Europe) - On Thursday 4 October, the European Central Bank (ECB) decided to keep eurozone interest rates unchanged, confirming market predictions. The minimum tender rate applied to key refinancing operations thus remains at 4%, while the marginal lending facility rate and that of the deposit facility remain at 5% and 3% respectively.
The formulae used by the Governing Council after its meeting in Vienna have changed and, although rates do not seem to be changing for now, all options remain possible. Confronted on one hand by turbulence on the financial markets and the strength of the euro and, on the other hand, by high oil and commodity prices which fuel inflation, the ECB has chosen not to make any changes. In order to resolve this tricky equation it prefers to wait for more information, its president told the press, choosing to strike a balance between risks for growth and risks for prices. Many observers are now saying that the ECB will keep its rates unchanged until the end of the year. Quite improbable just two months ago, the likelihood that an end to monetary rigour begun in December 2005 is in sight is not to be fully ruled out for others, even though the conditions have not yet been met.
Although a fall in rates does not seem topical, the ECB's rhetoric has gone through a subtle change. Speaking before journalists, Jean-Claude Trichet did not speak of vigilance, and did not use the term “accommodating”, generally used to describe monetary policy and the level of rates. Only the terminology stressing the absence of any bias on the part of the ECB (which does not commit itself in advance) and that indicating its intention to act firmly and in a timely manner, have remained the same. Being careful not to speak of “pause”, Trichet above all stressed the risks for growth.
The general price level has greatly increased going from 1.7% in August to 2.1% in September, the ECB president warned, saying that the rate of inflation will remain “significantly above 2% in the remaining months of 2007 and in early 2008”. He assures that the monetary policy “stands ready to counter upside risks to price stability” and also notes that in the medium term there is “the background of good economic fundamentals in the euro area”. Forecasts available for 2008 confirm the main ECB scenario with growth around its potential (a little over 2%), Trichet commented, judging that growth moderation in the United States should be offset by increased vigour from developing economies.
On balance, the risks to the outlook for growth are judged to lie on the downside (impact of financial crisis, protectionist pressure, imbalance on world markets, surges in oil prices), he continued, moderating his speech. Given the volatile nature of the financial markets and the re-assessment of risks noted over recent weeks, the ECB's assessment is surrounded by “heightened uncertainty” and it is necessary to show great “caution” to asses the potential impact that the crisis will have on the real economy, Trichet said. As a consequence of this, the Governing Council, which will monitor the situation very closely, states that more ample information is needed before new conclusions can be drawn concerning monetary policy. Mr Trichet added that their decision would take all the parameters into account and that the exchange rates are one of these parameters in so far as they have an effect on price stability. (ab)