|Page (1) of 1 - 09/08/11||email article||print page|
ECB chief Trichet sees less inflation risk, signals rate hikes are off the agenda for now
FRANKFURT, Germany (AP) ' European Central Bank head Jean-Claude Trichet warned there are increasing risks for the eurozone's waning economic recovery and less chance of inflation ' clear signals the bank is done raising interest rates for some time.
At a news conference, Trichet offered new, gloomier economic projections after the bank's 23-member governing council left the benchmark refinancing rate unchanged at 1.5 percent.
Pressure had risen on the bank to freeze its rate hike campaign after a turbulent summer in which worries grew that the 17-nation currency bloc's debt crisis was hurting consumers and businesses and global growth was stalling.
Trichet said the eurozone economy was expected "to grow moderately" but that that assessment was "subject to particularly high uncertainty and intensified downside risk."
Meanwhile, the risk of excessive inflation, which he had previously described as leaning to the upside, was now "broadly balance" with an equal chance of inflation below forecasts.
Trichet turned aside questions about whether rates are on hold, saying "we are never pre-committed, and we stand ready to do whatever is necessary."
But economists say the lower inflation estimate and reduced growth expectations are signs that the bank will not raise rates soon. It controversially raised rates a quarter point in April and July, based on earlier expectations for more inflation and stronger growth.
Shadows over Europe's recovery have gathered quickly since the bank last made a rate decision on Aug. 4. Indicators of business and consumer optimism have sagged and second quarter growth came in at a bare 0.2 percent. The continent's debt crisis has led to dizzying ups and down on stock and bond markets, which is now weighing on consumption and production.
The uncertainty over growth also pushed Britain's Bank of England to leave rates unchanged on Thursday, at a record low of 0.5 percent, although in Britain's case inflation remains stubbornly high at 4.4 percent.
Eurozone officials are trying to contain a crisis triggered by market concerns that governments cannot handle their high debt loads. Fears of default have raised borrowing rates for financially troubled countries, to the point where Greece, Ireland and Portugal have need bailouts from other eurozone countries and the International Monetary Fund.
With prospects for the economy worsening, some experts even think the bank may have to cut rates if Europe's debt crisis takes a turn for the worse. Economists at the Royal Bank of Scotland see a 40 percent chance that the bank will have to slash rates by a half percent by the end of this year.