Trichet’s Strong Vigilance Signals ECB Ready to Raise Rates

Tuesday, 28 Jun 2011 09:40 AM

 

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European Central Bank President Jean-Claude Trichet said policy makers are in “strong vigilance mode,” signaling they intend to raise interest rates next week.

“We’re taking the decision progressively to anchor inflation expectations,” Trichet said at a press conference in Amsterdam today following a seminar with central bankers from the Asia-Pacific region. “As far as we’re concerned, we’re in strong vigilance mode.” The euro rose almost half a cent on the comment to $1.4284 and yields on German two-year notes climbed 2 basis points to 1.40 percent.

The ECB raised its benchmark rate in April for the first time in almost three years, lifting it by a quarter point to 1.25 percent. Policy makers next convene in Frankfurt on July 7. Inflation in the 17-nation euro region has been in breach of the ECB’s 2 percent limit since December.

“We are taking the decisions progressively that we judge appropriate to continue to very solidly anchor inflation expectations, which by the way has been the case and is the case at the moment,” Trichet said. That is “extremely important for the stability, the confidence, and the prosperity of Europe,” he said.

Trichet declined to comment specifically on the Greek debt crisis or a French proposal under which creditors would agree to roll over 70 percent of their Greek bonds.

Up to Governments

“This is responsibility of governments,” he said. “There are several proposals being examined. We’re observing what’s going on. The decision is made by the governments themselves and then we have our own position.”

Also at the press conference were Bank of Korea Governor Kim Choong Soo and Dutch Central Bank Governor Nout Wellink. Kim was asked if Korea would consider buying Greek debt.

“I can’t say which things we will buy, I’m not in a position to give an answer,” he said.

Trichet said while central bankers might have “very different challenges to cope with, we are very united on the goal of solidly anchoring inflation expectations.”

“There you have a unity of purpose which is very, very strong, which I observe on the global level,” he said. “That doesn’t mean we have an easy task.”

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