FRANKFURT, March 6: ECB president Jean-Claude Trichet made it clear on Thursday the job of the European Central Bank was to keep prices in check, signalling he was in no hurry to cut interest rates at a time of slowing growth and rising inflation.
He was speaking after the bank held its key lending rate at 4.0 per cent while cutting growth forecasts and raising inflation estimates.
“We emphasise that maintaining price stability in the medium term is our primary objective, in accordance with our mandate,” Trichet told journalists after the bank announced its widely-expected decision.
“If we need any confirmation that we need to be faithful to our mandate this would certainly come from the 320 million fellow citizens” of the eurozone who wanted stable prices above all else, he said.
Trichet stressed that was also “of the highest priority to the (ECB) governing council.”
The central bank earlier reduced its 2008-2009 growth forecasts but raised inflation projections after the Bank of England kept its own key interest rate steady at 5.25 per cent.
The ECB decision saw the euro hit a fresh all-time high of $1.5373, buoyed in part by the prospect that eurozone interest rates would remain stable for some time while US monetary policy was set to ease further.
Trichet presented forecasts by ECB staff for growth and inflation in a zone that represents around 15 per cent of global gross domestic product (GDP).
The bank foresaw economic growth this year of 1.7 per cent, down from an earlier estimate of 2.0 per cent.
For 2009 the ECB cut its growth prediction to 1.8 per cent from 2.1 per cent.
The inflation outlook for 2008 was raised meanwhile to 2.9 from 2.5 per cent.“The latest information has confirmed the existence of strong short-term upward pressure on inflation,” Trichet said.
In 2009 it was expected to ease back to 2.1 per cent, higher than the previous estimate of 1.8 per cent and above the central bank’s target of close to but below 2.0 per cent.
Despite calls for the ECB to cut its main lending rates, Trichet said the decision to leave them unchanged was unanimous and that there had been no calls to either raise or lower the present benchmark.
Pressure has been growing for a rate cut as the economy has been hit by record oil prices, slumping US activity, financial market turmoil and a soaring euro that could undercut exports.
But Trichet insisted that eurozone economic fundamentals were sound and that macroeconomic data pointed to moderating but continuing real GDP growth.
“The level of uncertainty resulting from the turmoil in financial markets remains high,” he acknowledged.
The ECB chief refuted charges that bank policy was hampering growth and hurting workers.
“There is no contradiction between price stability and growth and job creation,” Trichet stressed.
“We believe that the current monetary policy stance will contribute to achieve this objective.”
Meanwhile, oil prices spiked to a new record above $105 a barrel on a surprise drop in US crude stocks, a small explosion in New York’s Times Square and the falling dollar.
The blast caused no injuries, but any pressure on oil prices fuels inflation concerns.
At 3.2 per cent, eurozone inflation is now at the highest level since the single currency was launched in 1999.
The ECB’s position stood out again from that of the US Federal Reserve, which has slashed its key rate sharply to 3.0 per cent since September to boost the US economy and appears ready to reduce it again.
That has pushed the dollar lower against the euro and increased calls in Europe for an ECB cut.
But at UniCredit Group, research director Aurelio Maccario said “it will take more time to see the ECB clearly leaning towards a softer stance.”
Matthew Sharratt of Bank of America felt the ECB wanted to ease monetary policy to buffer the economic slowdown but that it “will probably hold out for May given concerns over inflation.”
Sylvain Broyer at Natixis said: “It is obvious that the ECB wants to delay the first cut in order to offset the inflation.”—AFP