MercoPress. South Atlantic News Agency

“Risk reappraisal” leaves Euro rate unchanged at 4%

ECB Pte. Jean C. Trichet

The Governing Council of the European Central Bank meeting in Vienna decided to leave interest rates unchanged at 4%. The decision comes despite the strength of the Euro against the US dollar and calls from some European leaders to cut rates and boost European competitiveness.

ECB president Jean Claude Trichet said that the fundamentals of the Euro area economy "support a favorable medium-term outlook for economic activity" but also admitted that "given the financial market volatility and the reappraisal of risk seen in recent weeks, this assessment is surrounded by heightened uncertainty". The information that has become available since our previous meeting said Trichet "has confirmed that the outlook for price stability over the medium term is subject to upside risks. Against this background, and with money and credit growth vigorous in the Euro area, our monetary policy stands ready to counter upside risks to price stability, as required by our primary objective". Trichet considered it remains necessary to gather additional information and examine new data before drawing further conclusions for monetary policy in the context of the ECB's medium-term-oriented monetary policy strategy focused on maintaining price stability. ECB will ensure that "risks to price stability over the medium term do not materialize and that the medium and long term inflation expectations remain firmly anchored in line with price stability" thus favoring sustained economic growth, well functioning markets and job creation. However such an anchor for medium and long term inflation expectations "is all more important at times of financial market volatility and increased uncertainty". Before the credit crunch hit global markets in the summer, the ECB had been expected to raise rates to 4.5% by the end of the year, but the consensus is now for them to remain unchanged in November and December. One of the leaders most pressing for the ECB to cut rates in order to reduce the value of the Euro and boost exports is French president, Nicolas Sarkozy. This week the Euro set a new record against the US currency when it reached 1.43 US dollars.