ECB moves to shore up growth with rate hold

13th January 2005, Comments 0 comments

13 January 2005, FRANKFURT – The European Central Bank left its key rate on hold on Thursday for the 19th month in a row in a bid to shore up economic growth in the face of a strong euro and a raft of conflicting signals about the outlook for the 12-member eurozone economy.

13 January 2005

FRANKFURT – The European Central Bank left its key rate on hold on Thursday for the 19th month in a row in a bid to shore up economic growth in the face of a strong euro and a raft of conflicting signals about the outlook for the 12-member eurozone economy.

Speaking at his first press conference for the year following Thursday's ECB meeting, bank chief Jean-Claude Trichet painted a picture of moderate economic growth and moderate inflation for the eurozone in the coming months with most analysts believing that interest rates in the currency bloc are likely to be hold at least until the end of the year.

But with the euro again accelerating as the ECB's 18-head rate-setting council was deliberating in Frankfurt, Trichet repeated the bank's concern about sharp fluctuations in the currency market saying that "such moves were unwelcome and undesirable for growth."

After falling back against the dollar last week, the euro has picked up speed again on renewed market worries about the US twin deficits (budget and trade deficits) with the common currency trading at USD 1.32 while Trichet was speaking at the ECB press conference.

Having been the key force behind the eurozone's recovery from a protracted period of stagnation, the eurozone's export machine could be hit if the euro was to sharply appreciate.

Indeed, the ECB meeting followed the release of data showing the eurozone's biggest economy, Germany expanding by 1.7 percent last year with growth powered by exports as consumer spending slumped.

The soaring euro has even sparked speculation that the ECB might be forced to cut rates so as to help ease some of the pressure on the common currency and remove the threat posed to eurozone exports.

But Trichet would not be drawn at the press conference on whether the bank's governing council had talked about a rate cut.

With many European economists pointing to the Chinese currency's peg to the dollar as helping to drive up the euro, Trichet also echoed the stance of the Group of Seven saying that there was a need for emerging Asia to move towards a progressive appreciation of currencies.

Speaking at Thursday's press conference, Trichet went on to describe the outlook for consumer prices in the eurozone as "broadly favourable" and again stressed that the ECB's expects inflation to fall below the bank's two percent target this year. Official data showed eurozone inflation coming in at 2.3 percent in December

While acknowledging the recent data was sending out mixed signals, Trichet told reporters that the current evidence still suggested that the eurozone was on course to moderate growth in 2005 with the ECB chief appearing somewhat relieved that about the fall in oil since his last press conference at the start of December.

Diminishing oil prices have already resulted in the European Commission revising up its forecast for eurozone growth in the first quarter of 2005. It now expects growth of about 0.5 percent compared to 0.4 percent expected in the fourth quarter of 2004 and 0.3 percent reported in the third.

Despite the drop in oil prices, Trichet insisted that "continued vigilance is the essence" and that the bank was on guard in case inflationary pressures re-emerged.

The ECB's benchmark refinancing rate has stood at a post-Second World War low of two percent since June 2003.

Thursday's ECB meeting was also attended by the new European Union leadership team, including European Commission President Jose Manuel Barroso, European Commissioner for Economic and Monetary Affairs Joaquin Almunia and Jean-Claude Juncker, the Prime Minister of Luxembourg which holds the sixth-month EU presidency.

The Frankfurt-based ECB's decision coincided with an announcement from Europe's other leading central bank, the Bank of England left its benchmark rate at 4.75 percent for the fifth consecutive month. 

DPA

Subject: German news 

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