MercoPress. South Atlantic News Agency

Euro zone rates unchanged, but ECB is “vigilant”

The European Central Bank, ECB, decided Thursday to keep Eurozone interest rates unchanged at 2% for another month but “strong vigilance” is required to ensure that medium and long-term inflation expectations remain well-anchored.

"Only by keeping medium and long-term inflation expectations firmly anchored at levels consistent with price stability can monetary policy make a significant ongoing contribution towards a recovery in economic growth", underlined ECB president Jean Claude Trichet adding that "the economic analysis indicates that energy price increases, in particular, imply upward revisions to the outlook for short-term price developments".

The decision anticipated by markets means ECB rates have remained at the same level since June 2003 which could benefit economies across Europe. However Euro-zone inflation reached 2.5% in September, above the bank's target of 2%, because of the surge in oil and fuel prices.

In his short presentation statement Mr. Trichet said that "on the basis of our regular economic and monetary analyses, taking into account ongoing upward pressure on prices stemming mainly from energy price developments, we have concluded that the monetary policy stance still remains appropriate".

"Strong vigilance with regard to the upside risks to price stability is warranted. Strong vigilance is also called for in the light of ample liquidity and buoyant monetary and credit growth in the euro area. It is of the essence that the increase in current inflation rates does not translate into inflationary pressures over the medium term and to ensure that inflation expectations remain firmly anchored at levels consistent with price stability. Across the maturity spectrum, interest rates in the euro area remain very low in both nominal and real terms, and the current very accommodative stance of monetary policy lends considerable support to economic activity".

Furthermore, although economic growth has been dampened by the marked increase in oil prices over recent quarters, "it appears that the euro area economy has shown considerable resilience to this shock, supported also by responsible wage-negotiating behaviour. Moreover, the latest indicators suggest that economic activity is currently strengthening. This would be in line with the September ECB staff projections, which indicate a gradual recovery from the second half of 2005 onwards".

"On the external side, it is projected that ongoing growth in global demand will support euro area exports, and on the domestic side, that investment will benefit from continued favourable financing conditions, as well as from the robust growth of corporate earnings. Consumption should gradually recover, broadly in line with expected developments in real disposable income. At the same time, the outlook for economic activity remains subject to downward risks, relating mainly to oil prices, concerns about global imbalances and weak consumer confidence".