ECB keeps rates steadydespite surging oil prices

7th October 2004, Comments 0 comments

7 October 2004, BRUSSELS - European Central Bank left its key interest rate at a post-war low of two percent Thursday with ECB chief Jean-Claude Trichet playing down worries about weakening economic growth but warning about the risks posed by surging oil prices. "While some uncertainty has recently arisen concerning the expected strengthening of activity, the economic recovery in the euro area is ongoing," Trichet told reporters. He was speaking after a meeting of the bank's 18-head rate-setting council in

7 October 2004

BRUSSELS - European Central Bank left its key interest rate at a post-war low of two percent Thursday with ECB chief Jean-Claude Trichet playing down worries about weakening economic growth but warning about the risks posed by surging oil prices.

"While some uncertainty has recently arisen concerning the expected strengthening of activity, the economic recovery in the euro area is ongoing," Trichet told reporters.

He was speaking after a meeting of the bank's 18-head rate-setting council in Brussels, where the Frankfurt-based ECB held one of its regular so-called out-of-town meetings.

Despite saying that there was no sign of a pickup in private consumption, the ECB chief pointed to what he said was a gradual recovery in consumer confidence.

There werealso, he said, some tentative signs of an improvement in the prospects for employment as indicating that the economic upswing in the 12-member eurozone was proceeding.

But with oil prices racing up to a new record of more than USD 52 a barrel in trading Thursday, Trichet reaffirmed his recent hawkish stance on inflation, saying that the bank was pursuing "strong vigilance".

Trichet also went on to warn that if energy costs were to remain high, or even increase further, it could dampen the strength of the recovery.

While official data released last week showed eurozone inflation easing only slightly from 2.3 percent in August to 2.2 percent in September and consequently remaining stuck above the ECB's two percent target, Trichet again insisted inflation would fall below two per cent next year.

"Looking further ahead, the available information does not indicate that stronger underlying inflationary pressures are building up domestically," Trichet said.

Although high oil prices have had a visible direct impact on the inflation rate this year, he said, rising energy costs had not resulted in a push by workers to demand pay increases or for companies to lift prices.

The ECB met following surveys showing a slowdown in the pace of expansion in the manufacturing sector in eurozone as well as a dip in business confidence in the currency bloc's biggest economy, Germany.

Most analysts expected the bank to keep its benchmark refinancing rate on hold until early next year.

But financial markets have not ruled out the ECB delivering a rate rise by the end of the year with the recent hawkish stance taken by the bank's leading officials seen as part of moves by the bank to keep its options open for a possible rate hike.

Thursday's ECB's decision to keep rates on hold followed a similar move by the Bank of England, which left borrowing costs unchanged at a three-year high of 4.75 percent.

While the Bank of England has raised rates by 125 basis points since last November, monetary policy in the eurozone has remained unchanged since June last year when the ECB delivered a hefty 50 basis points cut in borrowings costs.

The other key European central bank, the National Bank of Switzerland, last month delivered a 25 basis points rise in interest rates - its second this year - waving off concerns about an uncertain global economic outlook and insisting that the risks posed by higher oil prices were only temporary.

DPA

Subject: German news
 

0 Comments To This Article