ECB leaves interest rates unchanged at 2.5 percent, as outlook for growth remains good | VailDaily.com
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ECB leaves interest rates unchanged at 2.5 percent, as outlook for growth remains good

FRANKFURT, Germany – European Central Bank President Jean-Claude Trichet said Thursday that the conditions for growth remained strong but dampened speculation that interest rates could be increased in May.He nonetheless said rate moves were possible later this year, as the bank was keeping a close eye on inflation.”We will continue to monitor very closely all developments to ensure that risks to price stability over the medium term do not materialize,” Trichet told reporters after the ECB’s Governing Council decided to leave the bank’s key refinancing rate unchanged at 2.5 percent.But he clearly signaled that analysts’ widespread predictions that a rate increase is coming at the bank’s next monthly meeting is off the mark.”The present high probability which is given for an increase of rates in our next meeting does not correspond to the present sentiment of the governing council,” he told reporters.That surprised analysts who had thought an increase of at least a quarter of a percent was likely for the May 4 meeting.”The ECB is now monitoring the risks to price stability very closely but didn’t use the word ‘vigilance,’ which was formerly used to pre-announce that the next rate hike is in the offing,” HVB Group economist Marco Kramer said. “Mr. Trichet also announced that there are no longer downside risks to the ECB’s outlook for economic activity, but that risks to growth are now broadly balanced.”Kramer said Trichet’s remarks were a “clear dampener for expectations of the ECB speeding up its tightening process. Hence, June looks now much more likely than May for the next change in rates.”Trichet dismissed claims by some analysts who said the bank wouldn’t raise rates at its June meeting in Madrid because it hasn’t previously changed rates when meeting away from its Frankfurt headquarters.”I would also add that the sentiment that I see from time to time, in some remarks or market literature … on the fact that we do not increase rates when we are out of Frankfurt is equally not at all the sentiment of the governing council,” he said.The decision to leave the rate unchanged came amid signs of accelerating growth in the euro zone economy and increased consumer demand. It last raised its key refinancing rate by a quarter point to 2.5 percent after a similar hike in December 2005, the first interest rate increase in five years.In a survey of economists by Dow Jones Newswires, just two believed that rates would be increased in April, but 27 of the 52 polled said they believed two more rate increases were likely by the end of the year.Of those, 20 said they believed the bank’s interest rate would be at 3.25 percent, or higher, by the end of 2006.—On the Net:http://www.ecb.int


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