Trichet is pleased with stress tests results, says not cutting bond purchases is not surprising
Thursday, August 5, 2010
, Posted by Usman Ali Minhas at 10:52 AM
The European Central Bank today left interest rate at historic low of 1.00% as a way to continue supporting economic growth in the euro zone. President of the central bank Jean-Claude Trichet spoke at the press conference giving us the latest economic developments.
After the ECB announced rates steady at 1.00%, Trichet spoke at the press conference stating that economic conditions improved as seen by the data released in the third quarter after the successful stress test and rebound in the value of the euro.
He said growth is predicted to be moderate and uneven pace as there continues to be risks, while stating that the current benchmark rates are "appropriate". However, the high unemployment rate, which is currently at 10.0%, the highest level in 12 years, is threatening recovery. He expects the progress in the second half of the year to be not as strong as the second quarter.
Nevertheless, he did not change his economic forecasts for the economy, where in the coming meeting new growth and inflation projections will be announced.
Trichet did not announce any cutting in bond purchases, despite the improvement witnessed, and described the bank's decision as not surprising. He confirmed that bank's current and previous monetary actions are suitable and withdrawing stimulus may take place later on.
Moreover, Trichet revealed that euro-area money markets are showing progress, yet they are not back to their pre-crisis levels. Trichet said Euro Overnight Index Average (Eonia) rates increased in spite of the decline in demand and lack of liquidity. He expressed that results of the stress tests were pleasing, but said banks should work more on reinforcing capital, liquidity, and credit to non-financial when demand improves.
With regard prices, he mentioned that inflation pressures remain under control over the medium term, yet prices are estimated to show some volatility. He added that “Inflation expectations in the medium to longer term remain firmly anchored.” For 2011, “inflation should moderate, benefiting from low inflation price pressures.”
Concerning the euro's rebound, he did not have comments on the exchange rate, stating that it is not suitable to draw negative conclusions on the U.S. economy after the downbeat data released recently.
