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News : EU Economy Last Updated: Apr 24, 2009 - 5:31:05 PM


European Central Bank keeps benchmark interest rate on hold at 4%; Trichet to outline views on inflation at press conference
By Finfacts Team
Jun 5, 2008 - 12:45:46 PM

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European Central Bank President Jean-Claude Trichet (on right) welcomes Irish Finance Minister Brian Lenihan to the 10th anniversary celebration of the ECB, in Frankfurt on Monday, June 02, 2008.

The European Central Bank Governing Council at a meeting in Frankfurt today, kept the ECB's benchmark interest rate on hold at 4%.

ECB President Jean-Claude Trichet will outline reasons for the decision at a press conference, which will begin about 1:30 pm Irish time.

In May, the flash estimate of inflation in the Eurozone rebounded to 3.6%, the 16-year high that was hit in March and above the ECB target of "below but close to" 2%.

Most serious economists now expect the ECB to keep the benchmark rate unchanged into 2009 despite an expected slowing in the Eurozone economy in the second-half of this year.

Eurozone growth has proved unexpectedly resilient in spite of the slowing global economy, the IMF (International Monetary Fund) said last Monday and it revised its 2008 forecast higher.

The IMF said two months ago that its forecast for inflation to slow next year meant the ECB could already "afford some easing of the policy stance", but it now says that the bank should wait to ensure price gains don't feed into wages.

The IMF also says that policymakers will have room to cut interest rates "further ahead" should its forecast prove correct. "The central question for monetary policy is how to balance the risk of a broad-based increase in inflation with the prospect of gradually building disinflationary forces generated by the economic slowdown . . . In these circumstances, it is appropriate to keep policy rates on hold," it says.

Trichet said at the 10 anniversary celebration of the ECB last Monday: "The euro has been a remarkable success. I don't intend to name and shame those who said that Europe's single currency would be impossible, or that its introduction would be a failure, or that it would be impossible for it to inherit the best previous credibility levels, or that fault lines in its construction would lead to a permanently weak currency. A success indeed. Europeans have achieved what was deemed impossible, what had never been tried. As Tocqueville said: “L’histoire est une galerie de tableaux dans laquelle il y a peu d’originaux et beaucoup de copies”. “History is a gallery of pictures in which there are few originals and many copies.” The single currency of Europe is indeed an original, according to Tocqueville's definition. This is a time for celebration.

This anniversary is no time for complacency. But for continuous efforts, because the challenges lying ahead for Monetary Union will be numerous and demanding. As one of the major central banks in the industrialised world, we, like the others, have three challenges to cope with in our monetary policy-making: rapid technological progress, globalisation in all its dimensions, including the transformation of global finance, and population ageing.

On top of those three major challenges, the ECB and the Eurosystem have to cope with two other important, self-assigned challenges. The first is the deepening of economic and financial integration at continental level, the progressive completion of a single economy with a single currency; we are the only central bank which is actively contributing to a major structural transformation of its own economy. The second is enlargement: we are called upon to extend progressively the euro area across the European Union as a whole; we are also the only central bank to undertake such an endeavour."

Webcast of Press Conference, which begins at 1:30 pm Irish time.

Choose an installed player- RealVideo, WindowsMedia or Quick Time. Select best player and speed for good reception. (Recording available after 3:00 p.m.)

 

Finfacts will provide an analysis of the conference later.

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© Copyright 2009 by Finfacts.com

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