MercoPress. South Atlantic News Agency

Euro interest rates on hold and geared to price stability

Despite the strength of the Euro which is closing on the 1.50 US dollar benchmark, the European Central Bank, ECB, left interest rates in the 13-nation Euro zone unchanged at 4% with a clear orientation towards maintaining price stability.

At a news conference in Frankfurt, on Thursday following the announcement, ECB President Jean-Claude Trichet explained the decision, saying that on the basis of the information that has become available since the previous meeting, "the outlook for price stability over the medium term is subject to upside risks", but emphasized that with money and credit growth vigorous in the Euro area, "ECB monetary policy stands ready to counter upside risks to price stability". However, the ongoing reappraisal of risk in financial markets has led to continued uncertainty and this warrants a thorough examination of additional information before drawing further conclusions for monetary policy "in the context of our medium term-oriented monetary policy strategy focused on maintaining price stability". Mr. Trichet added that accordingly, the ECB Governing Council will monitor very closely all developments and "by acting in a firm and timely manner on the basis of our assessment, we will ensure that risks to price stability over the medium term do not materialize and that medium and long-term inflation expectations remain firmly anchored in line with price stability, which is all the more important at times of financial market volatility and increased uncertainty". More specifically on price developments annual inflation rate increased very strongly to 2.6% in October 2007, from 2.1% in September. "This sharp increase is a matter of particular concern and it is essential that it does not affect medium to longer-term inflation expectations. To that effect, we have already indicated on previous occasions that we are now in a period during which unfavourable effects from energy prices will have a strong upward impact on annual inflation rates, owing mainly to the marked decline in energy prices a year ago. In addition, these effects have been strengthened by recent substantial further increases in oil, non-oil commodity and, in particular, food prices". Trichet said that overall Euro zone inflation is expected to remain significantly above 2% in the coming months before moderating again in the course of 2008. Regarding financial markets, ECB "will continue to pay great attention to developments over the period to come".