Brussels, 08/11/2007 (Agence Europe) - Despite worries over inflation, the European Central Bank (ECB) has not changed euro area interest rates. At its meeting on Thursday 8 November, the ECB governing board decided that the minimum bid rate applied to the main refinancing transactions would remain at 4% and that the lending facility interest rate and that of the deposit facility would stay at 5% and 3% respectively. There is still uncertainty on the effect of financial market turbulence and the ECB needs further information before drawing conclusions for monetary policy, said Jean-Claude Trichet in a press conference.
The ECB President opened his statement by saying that, at this point, the available information “fully confirms that the outlook for price stability over the medium term is subject to upside risks,” and he went on to that inflationary tendencies were particularly worrying. In October, the annual rate of inflation rose from 2.1% in September to 2.6%, so that the general level of prices should remain “significantly above 2% in the coming months before moderating again in the course of 2008”. The most recent developments in oil prices and agri-food prices were the main reasons for this bump in inflation, which would probably have been worse and more prolonged in absolute terms if there had not been these two additional surges, he told journalists. He said he would look very closely for second round effects.
At the same time, the economic fundamentals of the euro area remain “solid” and, he said, there was no need to change the basic scenario. Trichet still expects, therefore, growth close to potential in the euro area. Partly compensated by the good performance of the emerging economies, the slow-down in US growth should not affect the global economy and the large foreign demand should support European exports. The risks were, however, more marked and “the ongoing reappraisal of risk in the financial markets has led to continued uncertainty, he said, but he prefered to wait before considering any change in rates. He gave assurances that the ECB would “closely monitor” all developments.
Recently he had observed, he said, movement which he would not hesitate to call brutal and abrupt and he had already said that brutal movement was not welcome. Trichet noted that a strong dollar was still clearly in the interests of the United States. (A.B.)