Trichet Spouts Same Old Stuff

July 8, 2010

European monthly statements evolve much more slowly and smoothly than market perceptions.  Traders don’t like the monotony of these monthly  staged events but feel compelled to stay tuned, lest Trichet utter a market-moving surprise.  In the first hour following the start of today’s conference, the euro had appreciated fractionally further against the dollar, challenging but not yet penetrating $1.2700. 

The Governing Council agreed to leave its key interest rates unchanged, that is a 1.0% refinancing rate flanked by a 0.25% deposit rate and a 1.75% marginal lending rate.  A statement from ECB President Trichet retained all the usual points found in earlier statements this year:

  • The central bank rate structure is appropriate.  He will not say it, but a first increase remains a very distant prospect.
  • Economic recovery continues and is expected to be moderate and uneven in the future.
  • A high level of uncertainty moreover surrounds the outlook for growth, but risks to the forecast are broadly balanced.
  • The bond buying program and enhanced credit support are “temporary in nature” and therefore can co-exist without contradiction with the monetary policy mandate of price stability, which is defined as medium-term CPI inflation at below, but close to, 2%.
  • The present 1.4% rate of CPI inflation is likely to edge up late this year, but low domestic price pressures will keep inflation moderate overall into 2011.
  • Risks to the inflation forecast are broadly balanced, too.
  • Weak money and credit growth confirm that inflationary pressures over the medium term are likely to be contained.
  • Gauges of price expectations show that expected inflation in the medium term is well-anchored and consistent with the ECB target.
  • Fiscal policies need to be consolidated, with a primary goal of halting and reversing the increase in debt/GDP ratios.

Along the lines of the above creed of principles,  Trichet gave the ECB stamp of approval to the publishing of individual bank stress test results but added that appropriate actions then must be taken by certain banks where deemed necessary.  He also recommended “a quantum leap in terms of progress towards strengthening the institutional foundations of European Monetary Union.”

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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