Brussels, 04/09/2008 (Agence Europe) - On Thursday 4 September, the European Central Bank decided to keep Euro zone exchange rates unchanged. The minimum bid rate applied to main refinancing operations therefore stays at 4.25% and interest rates and the marginal lending and deposit facilities stand at 5.25% and 3.25% respectively. ECB services also unveiled their growth forecasts revising forecasts downwards for the end of the year.
At the end of the bank's monthly governing board meeting, Jean-Claude Trichet declared, “we decided to leave the ECB's main interest rates unchanged”. According to information provided to the ECB, inflation will remain well above the level compatible with price stability for a prolonged period and upward risks weighing down on this price stability will continue to prevail.
Mr Trichet also confirmed the weakening in Gross Domestic Product (GDP) growth during mid-2008 in the Euro zone. ECB September forecasts now see GDP growth within a 1.1% and 1.7% band in 2008 and a band of between 0.6% and 1.8% in 2009. This situation particularly reflects the effects on growth due to high raw material prices. Three months ago, the services of the ECB were counting on average growth of 1.5% and 2.1% of GDP in 2008 and between 1% and 2% in 2009 (see EUROPE 9676). However, although the president of the ECB sees the current growth of the Eurozone as being in “depression” where energy prices remain high and tension on the financial market could continue, he nonetheless notes “signs of gradual recovery” for 2009 with the current fall in oil prices, continued low unemployment and resistant world growth that will shore up external demand.
“In the future, on the basis of the current price of raw materials, the annual rate of inflation should, for a certain time, remain well above a level compatible with price stability, and there will not be a moderate and gradual fall until 2009”, Mr Trichet commented. ECB services are now predicting inflation ranging from 3.4% to 3.6% in 2008 and between 2.3% and 2.9% in 2009. These predictions reflect the still high level of energy prices and, to a lesser extent, the price of food and services.
Several times, Mr Trichet spoke of the bank's “main aim” which is to ensure medium-term price stability. The fight against inflation, as he put it, is the “only needle on our compass”. He highlighted the Governing Council's grave concern about the possible second round effects of high energy and food prices, in addition to inflationary risks. “The Governing Council is monitoring price-setting behaviour and wage negotiations in the euro area with particular attention. (It) has repeatedly expressed its concern about the existence of schemes in which nominal wages are indexed to consumer prices. The Governing Council calls for these schemes to be abolished”, explained Mr Trichet.
On budgetary policy, Trichet called on the euro area countries which are prey to considerable public deficits to put in place much more ambitious and concrete budgetary consolidation measures, particularly in the area of expenditure. He encouraged member states which have achieved their medium term objectives for deficit reduction to maintain a health budgetary situation. Such an attitude would allow the ECB to contain inflationary pressures. All the countries of the euro area, particularly those which recorded a significant loss of competitiveness and an increase in unemployment, should boost productivity by investing more in education and innovation, Trichet said. (M.B./transl.jl/rh/rt)