VIENNA, Oct 4: The European Central Bank remains ready to raise its key rates to help keep a lid on inflation in the 13-nation eurozone, ECB chief Jean-Claude Trichet said on Thursday.

However, the central bank head appeared to tone down that message in view of potential headwinds facing the region’s economy, not least from the credit crisis in the US, which he acknowledged is casting a shadow over the growth outlook in Europe.

“Our monetary policy stands ready to counter upside risks to price stability,” Trichet told a news conference here after the ECB had held its key rates steady at 4.0 per cent for the fourth consecutive month.

However, “given the financial market volatility and the reappraisal of risk seen in recent weeks... it remains necessary to gather additional information and examine new data before drawing further conclusions for monetary policy,” the Frenchman cautioned.

Significantly for ECB watchers, Trichet dropped a key phrase that he has used consistently for nearly two years now, describing the ECB’s monetary policy as being “on the accommodative side”.

That phrase had always been interpreted by the financial markets as a signal that there was still room for further rate hikes, because it means that borrowing costs are still relatively “cheap” and could therefore help fuel inflation.

Pressed on the omission at the news conference here, Trichet refused to be drawn any further.

But he insisted that the absence of the phrase “does not mean that we won’t raise rates if necessary,” he said.

While the growth outlook remained favourable on the whole, the risks to that outlook were firmly “on the downside,” Trichet said.

In particular, “we fully accept that uncertainties have augmented” in the wake of the global banking crisis, Trichet said.

Nevertheless, the central bank chief refused to put a new moniker on the ECB’s monetary policy stance.

“If we’d wanted to say (it was) ‘appropriate’, we would have said ‘appropriate’. If we’d wanted to say ‘neutral’, we’d have said ‘neutral’,” he insisted.

“We say that we’re ready to counter upside risks to price stability.”

The ECB has raised its key rate eight times since December 2005 and, until recently, had been widely expected to tighten monetary policy again this autumn.

But with the euro currently near record highs and the world’s financial markets still licking their wounds from the global banking crisis, the ECB has held off from raising rates further for the time being.

Indeed, eurozone politicians are becoming increasingly vocal in their calls for the ECB to actually cut interest rates to help ease the current credit crunch.

Trichet called the politicians to order over such remarks.

“Verbal discipline is very, very important on this question,” Trichet said.—AFP