ECB keeps key rate unchanged
By Geir Moulson |
January 14, 2011, Friday
|
Print Edition
Print Edition
THE European Central Bank's president yesterday warned inflation may remain above its target for months to come, while he urged the continent's governments to bolster measures to tackle the simmering eurozone debt crisis.
Jean-Claude Trichet's comments came after the ECB left its main interest rate unchanged at 1 percent yesterday for the 20th consecutive month.
The ECB's decision came although annual inflation in the 17-nation eurozone rose to 2.3 percent in December, above its target and a two-year high. The ECB's mandate is to keep inflation "close to but below 2 percent."
The Bank of England also left its main interest rate unchanged at a record-low 0.5 percent yesterday, despite rising inflation levels in Britain.
Trichet said the ECB sees evidence of "short-term upward pressure," mainly owing to energy prices, and inflation could temporarily increase further before returning to target levels later this year.
That hasn't yet affected the bank's longer-term expectation that price stability will be maintained but "very close monitoring is warranted," he added.
Raising interest rates is a tool to combat inflation, but can dampen economic growth.
Official figures suggest that eurozone growth is maintaining its positive momentum, Trichet said at his post-decision news conference.
However, "the risks to this economic outlook are still slightly tilted to the downside with uncertainty remaining elevated," he said.
The bank, the European Union and the 17 governments that share the euro are struggling to contain a crisis caused by too much state debt in some countries.
Yesterday's ECB meeting came amid mounting talk of increasing the powers and size of Europe's 440 billion euro (US$570 billion) bailout fund.
The ECB advocates "improvement in quantity and quality, namely in terms of the flexibility of intervention of this (bailout) fund," Trichet said.
Jean-Claude Trichet's comments came after the ECB left its main interest rate unchanged at 1 percent yesterday for the 20th consecutive month.
The ECB's decision came although annual inflation in the 17-nation eurozone rose to 2.3 percent in December, above its target and a two-year high. The ECB's mandate is to keep inflation "close to but below 2 percent."
The Bank of England also left its main interest rate unchanged at a record-low 0.5 percent yesterday, despite rising inflation levels in Britain.
Trichet said the ECB sees evidence of "short-term upward pressure," mainly owing to energy prices, and inflation could temporarily increase further before returning to target levels later this year.
That hasn't yet affected the bank's longer-term expectation that price stability will be maintained but "very close monitoring is warranted," he added.
Raising interest rates is a tool to combat inflation, but can dampen economic growth.
Official figures suggest that eurozone growth is maintaining its positive momentum, Trichet said at his post-decision news conference.
However, "the risks to this economic outlook are still slightly tilted to the downside with uncertainty remaining elevated," he said.
The bank, the European Union and the 17 governments that share the euro are struggling to contain a crisis caused by too much state debt in some countries.
Yesterday's ECB meeting came amid mounting talk of increasing the powers and size of Europe's 440 billion euro (US$570 billion) bailout fund.
The ECB advocates "improvement in quantity and quality, namely in terms of the flexibility of intervention of this (bailout) fund," Trichet said.
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